October started where September left off. Market volatility at the beginning of the month was notable, fuelled by continued slow global economic growth (particularly in the Eurozone), falling oil prices, speculation about the end of the quantitative easing (QE) programme in the US, continuation of geopolitical concerns (Syria, Iraq, Ukraine), and the spread of the Ebola virus. But the market volatility receded as a string of good news flowed into the market: the results of Asset Quality Review (AQR) by the European Central Bank were viewed positively by the markets; the US employment growth was strong, and the US corporate reporting season was also very strong with 75% of reporting companies exceeding analyst earnings expectations. The improving economic conditions in the US led the US Federal Reserve to announce that it will end its QE program. In contrast, the Bank of Japan announced an extension of its qualitative and quantitative easing (QQE) programme following a slowing of inflation.
The investment returns of the major markets for one and three months to 31 October 2014 are summarised below.
*Estimate at 10/11/2014
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
The MSCI World ex-Australia Index (hedged into AUD) increased 1.3% over the month. The Australian Dollar appreciated against major developed world currencies and this resulted in a weaker return of 0.1% (in AUD) on an unhedged basis. Across developed markets, the strongest performing countries in local currency terms were Hong Kong, Japan and the US. The weakest performing regions were UK and Europe. Emerging markets (unhedged in AUD) lagged developed markets.
The S&P/ASX300 Index rose 4.3% over the month, driven by the performance of the “Big Four” banks, following a torrid prior month of trading due to concerns in relation to the Murray Inquiry. Large Caps led the way while the Small Caps recorded a negative month, dragged down by Small Resources that suffered due to market concerns in relation to Chinese economic growth and the consequent impact on oil and iron ore prices. From a sector perspective, Energy and Materials were in negative territory while Health Care, Financials, Telecommunications and Property Trusts performed strongly.
Over the month, long duration bonds and inflation linked securities provided a good return. The Australian dollar appreciated against the US dollar and most other currencies.