Investment commentary - 31 March 2012



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

Despite familiar headwinds, global markets continued their upbeat trend in March, predominately boosted by data that suggested a strengthening US economy, and the easing of the euro zone debt tensions.

Investors reacted negatively to China’s decision to cut the official GDP growth target from 8.0% to 7.5% and markets returns were dampened by rising oil prices resulting from political tensions in the Middle East. Locally, equities performed marginally better than bonds, and the RBA decided to leave the official cash rate at 4.25%.

Significant developments over the month were:

  • The Board of the Reserve Bank of Australia left the official cash rate unchanged at 4.25%. The minutes suggested that despite global concerns relating to the euro zone debt crisis and the slowdown in East-Asia, Australian GDP and CPI figures were expected to track within their target ranges.
  • Domestic unemployment remained steady at 5.2% (trend estimate).
  • The US economy continues to strengthen as their labour markets improves, with seasonally adjusted unemployment rates holding at a three year low of 8.2% in March. However, caution still remains over the sustainability of U.S economic expansion, especially given the rising instability in the Middle East and subsequent oil price surge.
  • The Chinese government revised GDP growth targets for 2012 downwards from 8.0% to 7.5%. This raised concerns over China’s future impact on the global economy given the country experienced 9.2% GDP expansion last year. The drop in HSBC PMI Index from 49.7 to 48.3 in March added concerns to the slowdown in China’s economic activity, which signalled a fifth successive month-on-month deterioration in the Chinese manufacturing operations.
  • Sovereign bond auctions and the resultant sharp increase in Spanish and Italian yields demonstrated that despite finalising a second Greek bailout, the euro zone sovereign debt crisis remains as a concern for investors. To alleviate rising concerns of contagion, euro zone finance ministers have proposed extending the funding capacity of the European Financial Stability Fund and the European Stability Mechanism.
  • Owing to rising political tensions in the Middle East, oil prices remain relatively high, although slightly lower from previous month, finishing March at US$103.0/bbl, down 3.8% for the month. Gold also dropped during the month, returning -4.1% and settling at US$1,663.80/oz.

Australian Shares

The local market had a positive month, despite the mixed offshore data. The S&P/ASX 300 Index returned +1.2% for the month, building on a positive trend in previous months to finish the quarter up 8.6%. Large Cap stocks (+1.5%) outperformed their Mid Cap (+0.3%) and Small Cap (+0.2%) counterparts. Defensive plays were preferred during the month, and dominating the returns of the bourse was the Financials (ex property) sector, which contributed +1.2% to the overall Index return. Other top performing sectors for the month were IT (+13.3%), Healthcare (+7.5%) and Utilities (+5.8%) sectors. Underlying the performance of these sectors, were strong returns from ANZ (+6.5%), Westpac (+5.4%), QBE (+22.3%), CSL (+9.7) and Macquarie Group (+9.2%).

Overseas Shares

In local currency terms, the MSCI World ex Australia Index returned +1.8%. Unhedged investors benefitted from the depreciation of the Australian dollar over the month, with the unhedged benchmark returning +5.8%. Growth (+6.0%) outperformed Value (+5.5%) stocks in A$ terms based on the S&P Developed ex-Australia Large Medium Cap Value and Growth indices. Emerging markets returned +0.8% in A$ terms over the month (as measured by the MSCI Emerging Markets Index).

In the US, the S&P 500 Composite Index returned +3.3%, the Dow Jones Industrial Index was up 2.2% whilst the NASDAQ Composite Index increased by 4.2%, in local currency terms. In Europe, the DAX 30 (Germany) returned +1.3% however the FTSE 100 (UK) was down 1.3%, and the CAC 40 (France) returned -0.6%, all in local currency terms. Asian markets, with the exception of Japan, experienced a correction, mainly driven by soft economic data from China, which saw the Chinese Shanghai Composite Index decreased by -6.8% for the month. Japan (TOPIX) returned +3.3% for the month while negative returns were seen in Hong Kong and India, with the Hang Seng returning -4.9% and the BSE-500 down 1.4% for the month, all in local currency terms.


Domestic REITs as measured by the benchmark S&P/ASX 300 A-REIT Index finished the month down -0.6%. GREITs continued to produce positive returns. The FTSE EPRA/NAREIT Global Developed Index returned 2.3% on a fully hedged basis. Unlisted property funds (as measured by the Mercer/IPD Pooled Property Fund Index) increased by 1.1% over the month.

Fixed Interest

Domestic bond markets posted positive returns with the UBS Australia Composite Bond Index returning 0.8%. Global bond returns were also positive. The Citigroup World Government Bond (ex-Australia) Index gained 3.2% during the month and similarly, the Barclays Capital Global Aggregate Bond Index appreciated 3.5%, both on a fully hedged basis.


The Australian dollar depreciated against all major currencies. Notably, the A$ performed the worst against the US dollar and the Pound Sterling, returning -4.1% against both currencies. The dollar returned -2.9% against the Euro and -1.8% versus the Yen. On a trade weighted basis, the local currency depreciated 2.9%.


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