Investment commentary - January 2019

Provided by EISS.
January provided some respite for global markets as concerns over rising US interest rates faded, China signaled a continued desire to stimulate the economy and the US temporarily reopened the government after the longest federal government shutdown in history. 

The US equity market started the 2019 calendar year positively with the S&P 500 appreciating 7.9% over the month of January. In large part this strong performance was driven by the Federal Reserve (Fed) indicating they would become more ‘patient’ in their pursuit of policy normalisation. These comments were welcomed by investors and alleviated fears the Fed was too ‘hawkish’ with their interest rate policy (i.e. wanting to continue to tighten). Furthermore, robust economic data in the US, despite a federal government shutdown for most of January, and news that trade talks with China were progressing were viewed favorably by global markets.

Elsewhere, the UK equity market followed global markets up, buoyed by stronger than expected GDP growth and falling inflation. This was despite all the challenges the UK faces with the imminent Brexit deadline after Theresa May’s Brexit deal was defeated convincingly in UK Parliament in January. In China, growth continued to slow as the effects of the US/China trade war flowed through to the broader economy. However, Chinese equity markets moved higher over the month as the People’s Bank of China (PBOC) announced additional easing measures and positive news flow in relation to trade talks with the US.

The Australian equity market rallied alongside global equity markets in January with the ASX 300 rising 3.9% January, although performance was more modest than global equities (7.1%). The weaker relative performance was driven by the Financials sector (-0.3%) which was weighed down by investor expectations of potential negative implications flowing from the Royal Commission into Financial Services final report which was due for release in early February. The Energy sector saw the largest monthly appreciation (11.5%) as crude oil prices rebounded from a disappointing December quarter, followed by the IT sector (8.8%) which also benefited from the global market rally.

The Australian dollar appreciated against most major currencies during January, rising marginally against the Pound (0.3%), and more significantly against the USD (3.6%), Euro (3.2%), and Yen (2.7%). In aggregate, these moves resulted in hedged global equities (7.1%) outperforming hedged equites (4.1%). 

Slightly lower bond yields across most developed markets led to small positive returns for most bond indices.  Yields on US 10-year (2.63%), Australian 10-year (2.23%), and UK 10-year (1.22%) government bonds all traded lower. Credit indices outperformed broader fixed income indices over the month recovering some of the losses from late 2018. 

Electricity Industry Superannuation Board ABN 57 923 283 236 as Trustee of the Electricity Industry Superannuation Scheme.

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