Investment commentary - 30 November 2011

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

Equity market volatility continued in November. The relief rally of October was short-lived after most global equity markets gave back some of the gains posted in the previous month.

Weak demand for an auction of German Sovereign bonds saw a fresh blow to investor confidence and fears spread that the Eurozone's strongest economy was getting dragged into the region's debt crisis. Locally, the RBA took measures to insulate the Australian economy from the slowdown in global growth, and confirmed a widely tipped rate cut.

Significant developments over the month were:

  • The Reserve Bank of Australia (RBA) cut interest rates from 4.75% to 4.50%. The move came as no surprise to the market, and the RBA confirmed that China's slowing growth, European weakness and softening commodity prices all weighed on their decision to cut rates for the first time in 31 months.
  • The seasonally adjusted Australian unemployment rate remained steady at 5.3% during October.
  • The Australian Bureau of Statistics reported that the preliminary price index for the weighted average of the eight capital cities decreased 1.2% over the September 2011 quarter. The index decreased 2.2% over the September calendar year.
  • The US economy had relatively positive news throughout the month. The Fed's periodic Beige Book indicated that most districts in the USA were experiencing slow to moderate growth, whilst the Chicago Purchasing Managers' Index unexpectedly improved, beating analysts' expectations.
  • In Europe, the spotlight shifted from Greece to the much larger economies that make up the majority of the European Union. Investors now sought to digest the increasing possibility of a breakup of the Union. Bond markets penalised countries attempting to issue debt, with yields on government issued bonds implying risk well above that being assigned by the ratings agencies.
  • Chinese inflation slowed for the second consecutive month to 5.5% yoy, indicating that measures taken by the PBOC to manage inflation were having the desired effect.
  • The price of oil continued its surge, finishing the month at US$100.4/bbl, up 8.4%. Gold was relatively flat for the month, returning +1.3% and ending the month at US$1,745.9/oz.

Australian Shares

After starting the month in positive fashion consolidating the strong gains made in October, the local market finished the month on a downward trend. Global uncertainty continued after Italian government bonds surged above 7% - this lead to a decline in risk appetite and the ASX/S&P 300 Index falling, returning -3.4% for the month.

Large Cap stocks (-3.3%) outperformed their Small Cap (-3.7%) and Mid Cap (-4.6%) counterparts.

At the sector level, Materials (-6.2%) and Financials ex property (-4.9%) detracted the most from performance. Much of the underperformance within the Materials sector was attributable to the monthly return of BlueScope Steel (-46.9%), which was sold off significantly on the back of a heavily discounted equity rights issue conducted to cover debt obligations. Within Financials, European debt concerns and ratings agency downgrades ensured that the Big 4 banks all posted negative returns. Defensive stocks bucked the overall negative trend, with CSL (+8.3%) and Westfield (+7.2%) providing investors with positive returns over the month.

Overseas Shares

Most countries in developed markets weakened during November. On an unhedged basis, the MSCI World ex Australia Index returned +0.9% in A$ terms, whilst in local currency terms, returns were further eroded with the index returning -1.2%. Based on the S&P Developed ex-Australia Large Mid-Cap Value and Growth Indices, Value stocks (+0.5%) underperformed Growth stocks (+1.3%) in $A terms. Emerging markets lost ground. The MSCI Emerging Markets Index returned - 3.6% over the month.

In the US returns were mixed, the S&P 500 Composite Index was down -0.2%, the Dow Jones Industrials Index returned +1.2% and the NASDAQ Composite Index -2.2%, in local currency terms.

Over in the European Union, the FTSE 100 (UK) returned -0.2%, the DAX 30 (Germany) -0.9% and the CAC 40 (France) -2.5%, in local currency terms.

Asian markets were weak, the Chinese Shanghai Composite Index returned -5.5%, Hong Kong's Hang Seng -9.2%, India's BSE 500 Index -9.6% and the TOPIX (Japan) returned -4.7%, in local currency terms.


Domestic REITs as measured by the benchmark S&P/ASX 300 A-REIT Index finished the month up 2.7%. In contrast to the local market, Global REITs declined.

The FTSE EPRA/NAREIT Global Index returned -4.4% on a fully hedged basis.

Fixed Interest

The local UBS Australia Composite Bond Index returned +1.7%. Overseas, the Citigroup World Government Bond (ex-Australia) was flat for the month, whilst the Barclays Capital Global Aggregate Bond Index was slightly down, returning -0.2%, both on a fully hedged basis.


Broadly speaking, the local currency depreciated against most major currencies. During November, the $A returned -3.2% against the US dollar, -3.6% against the Yen, -0.6% against the Pound Sterling and rose +0.3% versus the Euro. On a trade-weighted basis, the Australian dollar depreciated 3.0%.


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