Market Update - March 2014

Market Commentary

Tensions flared in Ukraine as Russian troops annexed the Crimean peninsula following the ousting of Ukrainian President Viktor Yanukovych. While the political dimensions to this unfolding crisis are complex, the response from global investors was in favour of defensive assets. Investor sentiment was further weakened by concerns related to the Chinese shadow banking system and the impact of a “clean-up” on growth rates. The recently appointed US Federal Reserve Chair, Janet Yellen, spooked markets mid-month by hinting at a faster pace of interest rate normalisation relative to what the market was pricing. And conditions in the Eurozone remain depressed, signaling the need for additional monetary easing.

The investment returns of the major markets for one and three months to 31 March 2014 are summarised below.


Market Performance – March 2014



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 08/04/2014

The MSCI World ex-Australia Index (hedged into $A) rose 0.4% over the month. The rise of the Australian Dollar against most major currencies resulted in a lower return of -3.4% (in $A) on an unhedged basis. Across developed markets the strongest performing countries in local currency terms were the peripheral European nations – Spain, Italy and Portugal, while the US equity market recovered from a mid-month sell-off to produce a positive absolute return. Emerging markets produced a flat return in local currency terms; however, the sector outperformed developed markets on an unhedged basis due to strong currency performance across EM economies.

The S&P/ASX300 Accumulation Index (0.2%) slightly underperformed hedged global equities as investor sentiment was again driven by similar macro themes. Top 20 stocks were the strongest performers in the Australian market, whilst small cap stocks underperformed. From a sector perspective, Financials and Industrials were the strongest performers, while Materials stocks lagged the most. Within the small cap universe the difference between Industrials and Resources was stark, with the latter underperforming by 6.0%. The S&P/ASX 300 Property Trusts Index underperformed both the broader listed equity market and Australian unlisted property.

Australian bonds produced a flat return, while investment grade credit outperformed government bonds due to higher yields. Global bonds (hedged to $A) produced a slightly positive return.

The Australian Dollar (AUD) appreciated 3.6% against the US Dollar over the month as the re-pricing of Australian interest rates made it relatively more attractive. The US Dollar appreciated against most other major currencies as positive growth outlook led to stronger investment flows into the US economy.