Investment commentary - 31 March 2010

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


The global share market experienced a strong rally in March, with European and Japanese markets delivering strong returns. Market focus still remained on the European sovereign debt issue. Although more sovereign credit downgrades were seen during the month, the European nations' agreement on joint financial assistance for Greece brought positive sentiment to the market. Meanwhile, investors also cheered at the upbeat economic readings from the US and the successful passing of the US health reform legislation. The Australian equity market was also buoyant, supported by solid GDP and retail sales figures, as well as the gain in commodity prices.

Both global and domestic bond yields surged significantly. Local bond yields were pushed higher by the RBA's tightening policy and strong domestic economic data, while US bonds saw a sell-off on the longer end due to the poor treasury auction results in late March. The Australian dollar appreciated further against all major currencies due to the combined effect of a rate rise, strong local economy and higher commodity prices, but downward pressure was also seen coming from the improving strength of USD and the monetary tightening of some Asian central banks.

Significant developments over the month were:

  • The Reserve Bank of Australia raised the official interest rate by 25bps to 4.0% at the board meeting held on March 2nd. The RBA remained positive on the economic outlook and indicated "interest rates to most borrowers nonetheless remain lower than average" and "with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average".
  • Domestic economic data released over the month was mixed. The Q4 GDP grew by 0.9% q/q in line with market expectations, bringing the y/y change to 2.7%. January retail sales growth was up 1.2% but the February figure disappointed and dropped by 1.4%. Building approvals experienced sharp drops in both January and February, down by 7.0% and 3.3% respectively. The unemployment rate remained at 5.3%, but the employment change was up by only 0.4k, well below the 15.0k market forecast. The number of owner-occupier loans saw a sharp drop of 7.9% in January.
  • US economic data released over the period was also mixed. The FOMC maintained the Federal Funds rate (the interest rate banks charge each other for loans) at 0 - 0.25%. The unemployment rate remained at 9.7% in February, compared with a consensus of 9.8%. The change in nonfarm payrolls was also upbeat, losing only 36k. But the March ADP employment change was very disappointing, posting a loss of 23k. The January trade deficit narrowed to $7.3bln, while consumer confidence soared up to 52.5. On the negative side, the Q4 GDP was revised down to 5.6%. The ISM manufacturing index dropped to 56.5% in February from 58.4% in January. Pending home sales unexpectedly dropped by 7.6% in January, while new home sales dropped by 2.2%.
  • In late March, Europe's leaders agreed to an emergency facility for Greece backed by the International Monetary Fund and bilateral loans from Euro zone states.
  • Crude oil (WTI) gained 5.6% for the month to finish at US$80.4 per barrel. OPEC met in mid March and decided to leave oil production targets unchanged, while US data released over the month suggested that US oil demand was slowly recovering.
  • Gold gained 0.7% to finish at US$1113/oz. The gold price remained in a narrow range over the month, with concerns from Greece's debt issue driving safe-haven flows into gold but the rate hike decision by the Indian central bank caused downward pressure on the gold price.

Australian Shares

The Australian share market posted a strong gain in March, maintaining the steady upward trend that began in early February. Positive local and US economic data, solid performance in commodity prices and the abating concerns on Greek credit issues buoyed the local market. The S&P/ASX 300 index surged 5.7% for the month, with Small Cap (+6.8%) stocks outperforming their Large Cap (+5.7%) and Mid Cap (+5.5%) counterparts.

Takeover activities and recovering oil demands drove the Energy sector (+9.7%) to deliver the strongest return over the month. Strong commodity prices also saw Materials (+8.6%) posting a substantial increase. Property Trusts was flat, while Telecom Services (+0.4%) were also out of favour. The big four banks and large mining companies were the major contributors pushing the local market upwards. Conversely, Sigma (-48.3%) was the biggest drag to the market after booking a massive annual loss following a big write-down on the goodwill of its generic drugs business.

Overseas Shares

The MSCI World ex Australia Index gained 6.6% in local currency terms. Value stocks (+3.7%) outperformed their Growth (+3.5%) counterparts as well as the broader market in AUD terms. In the US, the S&P 500 Index returned +6.0%, the Dow Jones +5.1% and the NASDAQ +7.1%, all in local currency terms. In Europe, the FTSE 100 (UK) returned +6.1%, the DAX (Germany) +9.9% and the CAC (France) +7.2% in local currency terms. Results from the Asian markets were also positive. The Chinese Shanghai Composite Index returned +1.9%, Hong Kong's Hang Seng +3.1%, the India BSE 100 Index +6.2% and the Nikkei (Japan) +9.5%, again all in local currency terms.


Domestic listed property trusts (A-REITs) returned 0.0% for the month, bringing the 12 month return to 42.0%. Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index) rose by 7.4% for the month and has now posted a gain of +76.8% over 12 months.

Fixed Interest

The UBS Australia Composite Bond index lost 0.6% for the month but is still up 1.3% for the quarter. The Citigroup World Government Bond (ex-Australia) Index and the Barclays Capital Global Aggregate Bond Index returned +0.3% and +0.6% respectively on a fully hedged basis over the month.


The Australian Dollar appreciated against all major trading partner currencies over the month. The local currency appreciated 2.5% against the US Dollar, 7.8% against the Yen, 3.4% against the Euro, 2.9% against the Pound Sterling and 3.2% on a trade weighted basis.


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