JANA Investment commentary - July 2017

Provided by EISS.
Global markets were broadly positive over the month of July, supported by a continuation of a synchronised pickup of global growth and growth in corporate earnings. In a recent market report, the International Monetary Fund commented on their increasing confidence of an acceleration in global growth, but highlights the risks of ‘rich’ equity valuations, low market volatility and economic policy uncertainty, making asset prices vulnerable to a sharp correction. Geopolitical risks also remains heightened.

In the US, markets were supported by dovish comments by US Federal Reserve (Fed) President Janet Yellen. The Fed kept interest rates unchanged as inflation remains below the 2% target and indicated that they will begin unwinding their $US4.5tn balance sheet ‘relatively soon’. However, the absence of inflationary wage pressures despite low unemployment levels has left the central bank perplexed, leading to Yellen’s comment that interest rates ‘would not have to rise all that much further’ to reach a neutral level supportive of sustainable economic activity if inflation remains low. Towards the end of the month, most US corporates reported strong earnings results, with majority of S&P 500 companies beating earnings forecast.

The MSCI World Index ex-Australia (hedged into AUD) rose 1.5% over the month. The Australian dollar appreciated against most developed market currencies in July, which resulted in a return for unhedged overseas equities of -1.6% (in AUD). In developed markets, the US (2.0%) and Switzerland (1.6%) outperformed the broader market, while Germany (-1.5%) and France (-0.5%) underperformed. The MSCI Emerging Markets Index (1.9%) outperformed unhedged developed markets.

Australian equity markets were range bound through July, ending the month unchanged. The Australian dollar strengthened significantly over the month, driven by stronger than expected economic growth in China, a sharp increase in commodity prices and a corresponding weakness of the US dollar. Australian Prudential Regulation Authority’s latest decision to increase the required capital held by banks was supported by major global ratings agencies, citing that the bigger buffer will strengthen the banking system to be more resilient to shocks, following their recent credit downgrades.

The S&P/ASX300 Accumulation Index ended the month flat at 0.0%. Large Cap (0.2%) and Small Cap (0.3%) stocks marginally outperformed the broader market over the month, while Mid Cap (-1.6%) stocks underperformed. Materials (3.5%), Financials (1.2%) and Consumer Staples (1.0%) outperformed, while Health Care (-7.5%) and Utilities (-5.3%) were the worst performing sectors.

The yield on 10-year Australian Government bonds rose to 2.7% over the month. Elsewhere in the world, the US, UK and Japanese 10-year Government bond yields fell, while the Euro and New Zealand 10-year Government bond yields rose. In Australia, long dated bonds and inflation-linked bonds both underperformed the broader market, reflecting the greater interest rate sensitivity of these sectors. 

This information has been prepared by Electricity Industry Superannuation Board ABN 57 923 283 236 as Trustee of the Electricity Industry Superannuation Scheme. This material includes general advice. The general advice had been prepared without taking into account your personal objectives, financial situation or needs. Therefore, before acting on this advice you should consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs. You should also consult a licensed or appropriately authorised financial adviser before making any investment decision. Neither Mercer (Australia) Pty Ltd nor Mercer Investment Nominees Limited take any responsibility for the content or presentation of the material provided by the Trustee.

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

This website is provided by Mercer Outsourcing (Australia) Pty Ltd (MOAPL) ABN 83 068 908 912, Australian Financial Services Licence #411980. The Trustee pays a fee for the provision of this service, however this fee is not conditional on you using this service or acting on the information or advice provided through this service. 'MERCER' is a registered trademark of Mercer (Australia) Pty Ltd ABN 32 005 315 917. Copyright 2016 Mercer LLC. All rights reserved.