Financial market update - February 2012

21/03/2012

Provided by Mercer. The information in this article does not necessarily reflect the views of the Trustee.


February proved to be another positive month for investors with share markets rising on the back of upbeat news about the US economy and promising steps toward a resolution to the European debt crisis.

While Europe's political and monetary woes continue to cause anxiety in the markets, a string of European summits - beginning in December and continuing through February and March - have helped to pull Greece and European banks back from the brink.

In late 2011 inter-bank funding markets - banks lending money to each other - had effectively closed, but a long-term refinancing operation agreed to at the December EU summit provided unlimited funding to banks and revived private funding markets.

That long-term policy move - which has been continued and strengthened at subsequent summits - helped mitigate some of the most significant risks of the crisis.

But the recent rally in Euro zone bond and equity markets should not be taken as a signal that the crisis is over considerable risks remain.

Meanwhile US markets hit an almost four-year high in mid-March - the benchmark Standard & Poor's 500 Index (SPX) reached its highest level since May 2008 with positive news on unemployment, housing, manufacturing and consumer confidence.

February Market update

A typical growth portfolio was up over 2% for the month of February.

Australian shares

Returns on the local share market return were positive - the ASX 300 Accumulation Index finished the month 2.0% up - but it lagged behind overseas markets. Domestic small companies led the local market rally, returning 6.5% for the month despite a mediocre month for the Resources sector (+1.0%). The cyclical sectors of Industrials (+6.5%) and Consumer Discretionary (+5.7%) were the strongest performers. Materials (-0.8%), Utilities (-0.7%), and Telecommunications (-0.7%) though had a weak month.

Overseas shares

It was a strong month for global share markets, driven by positive US economic data. Global shares returned 5.0% in February (in US$), which translated to 3.2% in unhedged Australian dollar (A$) terms as a result of a 1.7% rise in the $A. Global small companies also had a strong month returning 3.0% (in A$ unhedged terms). Emerging markets (+4.3% in A$ unhedged terms) also fared well, performing stronger than developed markets. Global stocks within the economically-sensitive sectors of Information Technology (+7.0%), Consumer Discretionary (+6.1%), and Financials (+6.0%) all realised healthy gains. The defensive sectors of Healthcare (+1.5%) and Utilities (+2.1%) were the weakest performers.

Real assets

The Real Asset sectors - property, infrastructure and natural resources - all fared well in February. Both Global Listed Infrastructure (+3.2%) and Global Listed Property (+1.3% in A$ hedged) benefitted from buoyed investor activity over the month, while Direct Property posted a solid gain of 0.6%. Commodity markets reacted positively to news that Chinas inflationary pressures are easing. Broad Commodities and Agricultural Commodities posted returns of 3.0% (A$ unhedged) and 2.3% (US$) respectively.

Fixed interest

Cash rates around the world remained unchanged in February. The RBA Board kept the cash rate at 4.25% with a further 25 basis point cut expected by the markets in the coming months. Bond yields moved higher over the month as investors exited the bond market in favour of equities. Ten-year (10Y) bond yields rose in the US (+18bps to 1.98%), UK (+9bps to 2.06%) and Germany (+6bps to 1.81%). Australian 10Y yields also rose (+25 bps to 3.97%), but fell in Japan by 1bps (0.95%).

Two-year yields rose in the US (+9bps to 0.31%), the UK (+3 bps to 0.43%), and in Germany (+2 bps to 0.18%).

Despite the increase in global yields, it was a positive month for global sovereign bonds (+0.5% in $A hedged) due to the increase in the Australian dollar. Australian sovereign bonds, however, were negative in February returning -1.0%. Global credit (+1.4% in A$ hedged) and global inflation-linked bonds (+0.4%) fared well, while Australian inflation-linked bonds ended the month lower (-0.4%).

Currency

The Australian dollar continued to climb as the RBA kept the cash rate steady at 4.25%. The A$ appreciated relative to the US dollar by 1.7% to end the month at US$1.0805. Against the Euro the Australian dollar fell slightly (-0.5% to 0.808) while relative to the Japanese Yen it rose strongly (+7.9% to ¥87.5).

This information has been prepared by Mercer Outsourcing (Australia) Pty Ltd (MOAPL) ABN 83 068 908 912, Australian Financial Services Licence #411980. Any advice contained in this document is of a general nature only, and does not take into account the personal needs and circumstances of any particular individual. Prior to acting on any information contained in this document, you need to take into account your own financial circumstances, consider the Product Disclosure Statement for any product you are considering, and seek professional advice from a licensed, or appropriately authorised, financial adviser if you are unsure of what action to take. Past performance is not a reliable indicator of future performance. 'MERCER' is a registered trademark of Mercer (Australia) Pty Ltd ABN 32 005 315 917. Copyright 2012 Mercer LLC. All rights reserved.

 

LCA Nominees Pty Ltd ABN 61 008 204 939 AFS Licence #240571, as Trustee for Lutheran Super ABN 93 371 348 387.

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.