Market update - September 2016

In what was a volatile month, domestic and international markets eventually ended the month relatively flat. International central bank policy remained the key driver of market movements across global markets.

The Australian equity market performance primarily reflected global market activity over the month.  The market generally trended lower but more than regained losses by month end. The largest movement in September was on 12 September when the markets reacted negatively to “hawkish” commentary from a member of the US Federal Reserve. (“Hawkish” means that it is believed that the economy is growing and inflation is rising and therefore a tightening of monetary policy by means such as an increase in interest rates may be required.) The market traded higher from 13 September for the remainder of the month.  The Reserve Bank of Australia (RBA) left interest rates on hold at 1.5% in early September.

In the US, economic releases were mixed with nonfarm payrolls missing expectations and retail sales declining for the first time in five months, while the release of August CPI beat market expectations. In Japan the Bank of Japan (BoJ or the central bank) announced it would start targeting 10-year interest rates, committing to keep them around zero as part of a new policy framework aimed at boosting inflation up to its 2% target. Data released on the last day of the month showed that Japanese consumer prices fell for the sixth straight month in August.

The monthly and quarterly (or financial-year-to-date) returns of the major markets to 30 September 2016 are summarised below.

Market Performance - 30 September 2016 Month Quarter
Australian Equities 0.5% 5.2%
Australian Property (Unlisted)* 1.7% 2.5%
Australian Property (Listed) -4.3% -1.9%
Overseas Equities (Hedged into AUD) 0.3% 5.2%
Overseas Equities (Unhedged into AUD) -1.3% 2.1%
Emerging Markets (Unhedged into AUD) -0.5% 6.2%
Australian Bonds -0.2% 0.9%
Overseas Bonds (Hedged into AUD) 0.1% 0.8%
Cash 0.1% 0.5%
Australian Dollar vs. US Dollar 1.8% 2.8%

Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
*Estimate at 07/10/2016

The Australian equity market as measured by the S&P/ASX300 Accumulation Index rose 0.5% in September.  Small Cap stocks rose 1.5% for the month, while Large Caps stocks (0.6%) underperformed the broader market.  Materials (5.7%) and Consumer Staples (1.6%) stocks outperformed, while Listed Property Trusts (-4.3%) and Telecoms (-4.0%) were the worst performing sectors.

The global equity market as measured by the MSCI World ex-Australia Index (hedged into AUD) gained 0.3% over the month.  The Australian Dollar appreciated in September, which resulted in a return for unhedged overseas equities of -1.3% (in AUD).  US equities were flat over the month with market volatility picking up from a very benign month of trading in August. In Japan, the Nikkei Index fell 2.6% as the markets reacted to the BoJ’s announcement as noted above. Top performers by country were Austria (4.4%) and Hong Kong (3.6%), and top detractors were while Denmark (-4.9%) and Italy (-3.4%).

Returns from bonds were relatively flat, being slightly negative from Australian bonds and slightly positive from global bonds.