Market Update - April 2014

Market Commentary

Investor sentiment continued to be dampened throughout April by the ongoing Ukrainian crisis and concerns around economic growth in China, however, risk assets were supported by broadly positive economic data in the developed world. The US Federal Reserve again tapered its quantitative easing program and investors interpreted this as a sign that the economic recovery in the US is gaining momentum. The most recent round of tapering sees monthly bond purchases decline by US$10B to US$45B, with the reduction split evenly between government bonds and mortgage-backed securities. In contrast, conditions in the Eurozone remain depressed and policymakers continue to hint at the possibility of additional stimulus measures. In Japan, risk assets underperformed due to concerns around the sales tax increase, which took effect at the beginning of the month.

The investment returns of the major markets for one and three months to 30 April 2014 are summarised below.


Market Performance – April 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 at 9/5/2014
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays

The MSCI World ex-Australia Index (hedged into $A) rose 1.0% over the month. The Australian Dollar finished marginally lower against most major currencies and this resulted in a higher return of 1.1% (in $A) on an unhedged basis. Across developed markets the strongest performing country in local currency terms was New Zealand, while the US equity market recovered from a mid-month sell-off to produce a positive absolute return. Emerging markets underperformed developed markets on an unhedged basis due to concerns around Chinese growth, and this led to China, along with Russia, being among the weakest performing EM countries in local currency terms.

Australian shares (the S&P/ASX300 Accumulation Index) were up 1.7% due to improving economic data --mainly a decline in the domestic unemployment rate and lower than expected domestic core inflation. Top 20 stocks were the strongest performers while small cap stocks underperformed. Property Trusts was the strongest performer, while Health Care and IT stocks produced negative absolute returns.

Global bonds produced positive returns as Fed Chair Janet Yellen’s comments in relation to US economic conditions led investors to push back their expectations on interest rate rises. Tensions in Ukraine also induced investor to buy bonds, contributing to the positive returns. -related tensions also helped push yields lower. This resulted in a positive absolute return for global bonds. The positive returns of Australian bonds for the month were partly due to weaker than expected core inflation reading.

The Australian Dollar (AUD) finished the month broadly flat against the US Dollar and underperformed most other major developed market currencies. Over three months the AUD remains one of the strongest performing currencies as high interest rates relative to the developed world average and low volatility in currency markets has increased the attractiveness of the carry trade.