Market update - October 2019

Geopolitical tensions appeared to ease during October. Trade talks swung to positive in October with a mini-deal being tabled, but not sealed, between the US and China.  This phase one agreement would see China increase it purchases of US agricultural products and accelerate the openness and transparency of its financial market and in return the US would refrain from further tariffs. On another front, a no-deal-Brexit was avoided after the deadline was extended to January 2020. Subsequently, a UK general election was announced for 17 December. 

Additionally, central banks retained their dovish stance (i.e an inclination for lower interest rate environment), with the US Federal Reserve further reducing it policy rate.  Third quarter US economic data was less favourable, showing a slowing economy, particularly within the manufacturing sector.  In response to the slowing momentum, the US Federal Reserve cut interest rates for the third time this year, to a range of 1.5% to 1.75%.  The Fed indicated further cuts would be unlikely unless economic indicators deteriorated.  In comparison at the end of Q3, China’s annualized growth slowed to 6%, while the Eurozone narrowly avoided recession.

Detracting from the positive sentiment was the Turkish invasion of Northern Syria, following President Trump’s announcement of the withdrawal of US troops from Syria.  Additionally, anti-government/pro-democracy protests continued in Hong Kong, whilst instances of civil unrest flared in Chile, Spain, Ecuador, Lebanon and Iraq.

In Australia, the Reserve Bank of Australia (RBA) cut the official cash rate by 25bps to 0.75%, although they did note that the positive job growth data reduces the need for further rates cuts.  Business sentiment remains below historic averages and consumer sentiment fell during October, the highlight within the survey was positive housing related consumer sentiment on rising dwelling prices and increasing finance approvals.

The investment returns of the major markets for one and three months, financial year (four months), and one year to 31 October 2019 are summarised below.

Market Performance - 31 October 2019

Month

Quarter

FYTD

1YR

Australian Equities

-0.4%

-0.8%

2.2%

19.5%

Overseas Equities (Hedged into AUD)

1.9%

2.2%

3.4%

12.1%

Overseas Equities (Unhedged into AUD)

0.4%

2.8%

5.2%

16.5%

Emerging Markets (Unhedged into AUD)

2.0%

1.1%

1.8%

15.5%

Australian Property (Unlisted)

0.5%

1.5%

1.8%

6.5%

Australian Property (Listed)

1.4%

-0.1%

2.5%

23.9%

Global Listed Property (Hedged into AUD)

1.8%

6.7%

7.8%

20.5%

Australian Bonds

-0.5%

0.5%

1.5%

10.1%

Overseas Bonds (Hedged into AUD)

-0.3%

1.4%

2.0%

9.7%

Cash

0.1%

0.2%

0.4%

1.7%

Australian Dollar vs. US Dollar

2.1%

0.0%

-1.8%

-2.8%

Source – JANA, FactSet

The Australian equity market declined 0.4% in October, with the Information Technology (-3.2%) and Financials (-2.9%) sectors being the biggest detractors, while the Health Care (7.3%) and Industrials sector (2.9%) posted the largest gains.  Large caps (-0.4%) slightly outperformed small caps (-0.5%) over the month. Australian Property Trusts (1.4%) underperformed Global Property Trusts (1.8%) for the month.

The MSCI World ex-Australia Index (hedged into AUD) rose 1.9% over the month. In developed markets, Sweden (4.9%) and Japan (4.9%) outperformed the broader market, while Belgium (-7.1%) and the Finland (-2.4%) underperformed. The MSCI Emerging Markets Index (2.0%) outperformed developed markets (hedged and unhedged), supported by positive US-China trade sentiment, central bank easing and a lower USD.

The Australian Dollar finished higher against most of the major developed market currencies over the month, except against the Sterling (-2.7%) which rallied as the risk of a no-deal Brexit diminished and the Euro (-0.2%).

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