Market update - January 2013

Bonds down, equities up

Markets continue to gain confidence that the various stimulatory activities of the major economic zones have removed significant risks from markets. In response, government bond yields have widened (falling bond prices) and risk assets appreciated. US politicians reached a deal to temporarily avert the ‘fiscal cliff’, and this, combined with 70% of reporting companies beating analyst expectations, helped pushed the S&P500 to its best January since 1997. Meanwhile, the contrast in sentiment from the euro-zone now compared to one year ago is stark. European Central Bank (ECB) President, Mario Draghi, recently spoke of a ‘relative tranquillity’ in markets – a long way from the ECB’s response in December 2011 which culminated in an injection of half a trillion euros by the ECB. Commodities also had a stellar month, with oil and metals generally appreciating. In summary, the volatility continues to decline (as measured by the VIX Index), and risk assets continue to rally strongly in response to positive news and data.

The MSCI World ex-Australia Index (hedged in $A) was up (5.6%) over the month, and unhedged returns (in $A) were weaker (4.6%) due to the $A strengthening against all major currencies apart from the Euro and Swiss Franc. All developed market equity indices reached positive territory over the month. The major markets of the US (5.3%), the UK (6.5%) and Japan (9.4%) posted excellent results, while the Euro region continued its good run led by the peripherals of Greece and Portugal as well as Denmark. Emerging markets (unhedged in $A) (0.9%) underperformed developed markets due to weaker performance from Brazil, Korea and South Africa. On a global sector view, all sectors posted positive returns, with Energy, Consumer Discretionary, Consumer Staples, Health Care and Financials being the standout performing sectors, while Materials and IT lagged but still managed to reach positive territory.

The S&P/ASX300 Accumulation Index achieved a positive return in December (5.0%), outperforming unhedged global markets. Mid Caps (6.1%) was the standout performing segment of the Index, driven higher by Industrial stocks. Small Caps lagged the broader index, dragged down by small Resources names. All sectors achieved positive returns over the month. The standout performing sector of the market was IT (14.7%), while Energy, Industrials, Consumer Discretionary, and Financials also performed strongly. Although all sectors were positive, Materials, Health Care and Utilities lagged.

The S&P/ASX 300 Property Trusts Index (4.4%) had another strong month of absolute performance, outperforming global listed property (3.9%) (hedged in $A), although underperforming the broader Australian listed markets. The sector continues it’s very strong past 12 months (31.5%). Domestic unlisted property had another positive month (0.5%) mostly driven by yield. Domestic unlisted property underperformed relative to domestic listed property over the month and past year. Listed domestic infrastructure & utilities (3.1%) underperformed equity markets.

As evidence of investor reversion towards risks assets, the yields on 10-year Government bonds for Australia, Euro Area, UK and the US all widened notably over the month. As such, fixed interest rate investments generally struggled. In particular, long duration Government bonds, both domestically and globally, were the laggards.

For the time being, investor sentiment appears to be in two camps: one is of the view that the recent market rally isn’t supported by earnings growth, while the other believes that there is a ‘weight of money’ moving from bonds to equities which will continue to support equity prices.


Market Performance – January 2013

(income and capital gain
or loss) %


3 months

Australian Shares (S&P/ASX 300 Accumulation)



International Shares (MSCI World ex-Australia) unhedged



International Shares (MSCI World ex-Australia) hedged



Unlisted Property (Mercer Unlisted Property Funds Index (Pre Tax)*



Listed Property Trusts (S&P/ASX 300 Property Trusts Accumulation)



Australian Bonds (UBS Composite Index)



Global Bonds (Barclays Global Aggregate (Hedged))



Cash (UBS Bank Bills)



Appreciation of $A against $US



*Estimate as at 7 February 2013