Investment commentary - 31 December 2010

18/01/2011
Provided by Mercer. The information in this article does not necessarily reflect the views of the Trustee.

Global Equity markets finished the year on a high after the return of investor risk appetite due to improved economic data in the US. Domestically, the Australian equity market moved higher driven by ongoing demand for raw materials. Global bond yields continued to rise in response to the positive data emanating out of the US.

Significant developments over the month were:

  • Domestic economic data released during December continued to show a mixed picture. There are estimates the floods in Queensland could reduce March quarter GDP by as much as 0.4 percentage points, mainly due to a halt in coal mining and exports. Consumer spending continued to weaken, in line with reports from retailers about a weaker Christmas period. In contrast, employment remained very strong.
  • In the US, President Obama announced a tax-break package which is expected to add 0.5% to GDP growth in 2011. Data released in December continued to indicate an improving US economy. Positive news was broad based and included housing, employment, confidence and manufacturing data. Employment data on the contrary was disappointing.
  • Chinese policy makers announced attempts to control inflationary pressures by lifting capital requirements for banks and lifting the official interest rate by 0.25%.
  • The oil price rose 8.5% to finish at US$91.32/bbl. Gold rose 2.3% to US$1417.63/oz.

Australian Shares

The Australian market closed 2010 on a positive note. The S&P/ASX300 rose 3.8% to finish the year up 1.9%.

Small cap stocks (+7.1%) again outperformed their Mid cap (+6.0%) and Large cap (+3.1%) counterparts. Similar to November, the Resources (+6.4%
sector posted very strong returns.

BHP Billiton (+6.1%) lead a number of resource companies to top the positive contributors for the third month in succession.

Overseas Shares

The MSCI World ex Aus Index returned +0.3% for the month and -2.0% over the calendar year, for an unhedged Australian investor. In local currency terms, the strong appreciation (over both the month and year) of the Australian dollar saw returns enhanced to +5.7% and +10.4% for the month and year. The month of December saw Value stocks (+0.8%) outperform Growth stocks (+0.1%) in AUD terms, based on the S&P Developed ex-Australia Large Medium Cap Value and Growth indices.

In the US, the S&P 500 Composite Index returned +6.7%, the Dow Jones Industrial Index +5.3% and the NASDAQ Composite Index +6.3%, all in local currency terms. In Europe, the FTSE 100 (UK) returned +6.8%, the DAX 30 (Germany) +3.4% and the CAC 40 (France) +5.4% in local currency terms. In Asia, the Chinese Shanghai Composite Index returned -0.4%, Hong Kong's Hang Seng +0.1%, India's BSE 100 Index +3.8% and the TOPIX (Japan) +4.5% all in local currency terms.

Emerging markets gained 0.2% over the month and 4.3% over the year in AUD terms.

Property

Domestic listed property trusts (A-REITs) returned +1.2% for the month to finish the year -0.7%. Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index) returned +4.8% over December and outperformed all other asset classes over the year, returning +19.6%.

Fixed Interest

The UBS Australia Composite Bond Index returned 0.0% for the month and +6.0% for the year. The Citigroup World Government Bond (ex-Australia) and the Barclays Capital Global Aggregate Bond Index returned 0.0% and 0.0%, over the month. Over the year the Citigroup Index returned +7.9%, whilst the Barclays Index returned +9.3%, all returns are on a fully hedged basis.

Currency

The A$ rose 6.9% against the US dollar, 3.5% against the Yen, 6.3% against the Pound Sterling, 3.7% against the Euro and 3.8% on a trade-weighted basis. Over 12 months the Australian dollar appreciated 14.0% against the US dollar and 8.8% on a trade-weighted basis.

 

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