Market update - September 2019

Uncertainty, particularly with regards to trade, was front of mind for investors in September. Against this backdrop, equity markets rebounded from weakness in August, as central banks continued to favor loose monetary policies amid fears of a slowdown in global growth.

Trade talks continued to affect markets in September with markets fluctuating in response to a range of positive and negative developments. September started with some escalation in trade tensions but ended on a positive note with some renewed optimism after China’s Ministry of Commerce announced that high-level talks would commence again in October.

The US Federal Reserve cut interest rates in September as economic growth continued to slow, albeit from high levels. The European Central Bank (ECB) also delivered accommodative monetary policy in September with quantitative easing. Elsewhere in the Europe, the UK’s imminent departure from the European Union faced further setbacks. Boris Johnson’s desire to push ahead with Brexit by the end of October hit a roadblock as British parliament voted to block the UK from leaving the EU without a deal.

In Australia, the Reserve Bank of Australia (RBA) left the official cash rate on hold at 1.0% in September (but reduced it to 0.75% in early October). Housing prices look to have stabilised, rising for the fourth consecutive month as interest rate cuts in June and July appear to be taking effect.

The investment returns of the major markets for one and three months (or financial year to date), and one year to 30 September 2019 are summarised below.

Market Performance - 30 September 2019

Month

Quarter

(or FYTD)

1 Year

Australian Equities

1.9%

2.6%

12.6%

Overseas Equities (Hedged into AUD)

2.3%

1.5%

2.5%

Overseas Equities (Unhedged into AUD)

2.1%

4.8%

9.8%

Emerging Markets (Unhedged into AUD)

1.8%

-0.2%

5.5%

Australian Property (Unlisted)

0.5%

1.3%

6.4%

Australian Property (Listed)

-2.7%

1.1%

18.4%

Global Listed Property (Hedged into AUD)

2.7%

5.9%

14.6%

Australian Bonds

-0.5%

2.0%

11.1%

Overseas Bonds (Hedged into AUD)

-0.6%

2.3%

9.8%

Cash

0.1%

0.3%

1.7%

Australian Dollar vs. US Dollar

0.1%

-3.9%

-6.8%

Source – JANA, FactSet

The Australian equity market ended September 1.9% higher, with Energy (+4.5%) and Financials (+4.3%) posting the largest gains, while Communication Services (-2.8%) and Health Care (-2.2%) were the biggest detractors. Small caps rose 2.6%, outperforming large caps which returned 1.8%. Australian Property Trusts (-2.7%) underperformed Global Property Trusts (2.7%) for the month.

The MSCI World Index ex-Australia (hedged into AUD) rose 2.3% over the month. In developed markets, Germany (3.5%) and Japan (6.1%) outperformed the broader market, while Hong Kong (-0.6%) and the US (1.8%) underperformed. The MSCI Emerging Markets Index (1.8%) underperformed unhedged developed markets.

The Australian Dollar edged higher against most of the major developed market currencies over the month, except against the Sterling (-1.1%). The bond market posted negative returns in September with yields rebounding from record lows.  The US 10-year ended the month at 1.68%, the Australian 10-year at 0.96% and the UK 10-year at 0.46%.

Australian bonds and Overseas bonds delivered negative returns over the month.