Market update - September 2018

Global equities showed resilience to edge higher in the month of September despite the increased tension between the US and China on tariff for imported goods. The Trump administration’s 10% tariff on a further $200bn of Chinese imports came into effect at the end of the month and was met with an announcement from Chinese officials of tariffs on an additional $60bn of US imports. China moved to align more closely with Europe and Japan, implementing some modest tariff cuts on imports from these regions, while the US and Canada entered into a new trade agreement, joining Mexico in a revision of the North American Free Trade Agreement (NAFTA).

The sustained economic strength in the US provided sufficient support for the Federal Reserve (the Fed) to raise the target range rates for a third time to 2.00% and 2.25% in 2018 as it moves closer to monetary policy normalisation. The European Central Bank (ECB) left their benchmark refinancing rate unchanged at 0% and renewed their commitment to taper their quantitative easing program by halving their monthly bond purchases commencing in October. In Australia, the RBA’s decision to leave the official rate at 1.5% for the 23rd consecutive meeting was followed by the release of the year-to-June economic growth of 3.4%, above the RBA’s forecast of 3%, adding weight to previous guidance that the next rates move would be up rather than down. Weakness in the housing market continued with dwelling values down 2.2% from their peak in September last year.  

The investment returns of the major markets for one month, three months (or financial year to date), and one year to 30 September 2018 are summarised below.

Market Performance - 30 September 2018

Month

Quarter or FYTD

1YR

Australian Equities

-1.2%

1.5%

14.0%

Overseas Equities (Hedged into AUD)

0.9%

5.7%

13.5%

Overseas Equities (Unhedged into AUD)

0.6%

7.5%

21.5%

Emerging Markets (Unhedged into AUD)

-0.5%

1.1%

8.0%

Australian Property (Unlisted)

0.5%

1.3%

10.3%

Australian Property (Listed)

-1.5%

2.0%

13.2%

Global Listed Property (Hedged into AUD)

-1.8%

0.4%

6.6%

Australian Bonds

-0.4%

0.5%

3.7%

Overseas Bonds (Hedged into AUD)

-0.4%

-0.1%

0.9%

Cash

0.2%

0.5%

1.9%

Australian Dollar vs. US Dollar

0.0%

-2.1%

-7.8%

Source –JANA, FactSet

Australian equities as measured by the ASX 300 fell 1.2% over the month due to valuation pressures, particularly in the Health Care sector. The release of the interim report from the Royal Commission on Banks and Financial Industry also weighed on the index. Small caps stocks (-0.4%) outperformed the broader market, while large caps (-1.4%) underperformed. Energy (4.3%) and Materials (4.1%) were the top performing sectors over the month, supported by higher oil and commodity prices. The Healthcare sector fell 7.3% with high valuation stocks CSL and Cochlear giving back some of the strong gains witnessed over the past 12 months, while the announcement of a Royal Commission into the Aged Care sector spooked investors. Utilities (-3.1%) also underperformed, while the Telecommunications sector had another strong month (2.7%).

Global equities as measured by MSCI World ex-Australia Index rose by 0.60% on unhedged basis and 0.90% when hedged against the Australian dollar. Japan (5.7%) and the UK (1.4%) outperformed the broader market while the US (0.5%) underperformed. In aggregate, developed markets (0.6%) outperformed emerging markets (-0.6%).

The Australian dollar appreciated against most major currencies during September, rising marginally against the USD (0.1%) and the Euro (0.2%), and more significantly against the Yen (2.5%). Australian and Overseas bonds delivered negative returns over the month.