Investment commentary - 30 June 2010

26/07/2010
Provided by Mercer. The information in this article does not necessarily reflect the views of the Trustee.

 


The month of June saw global equity markets again lose ground due to weak economic data and the ongoing fallout from the European sovereign debt crisis. Global and domestic bond returns were strong after yields fell as risk aversion dominated sentiment, which benefited sovereign bonds as investors sought relative safety. Listed Property Trust returns fell for the second successive month.

Significant developments over the month were:

  • Julia Gillard successfully challenged Labor leader Kevin Rudd to become Australia’s first ever female Prime Minister. One of her early moves was to foreshadow a softening of the RSPT (Resources Super Profit Tax) after consultation with the mining sector.
  • The RBA kept the official cash rate at 4.5%. The board cited the potential for events in Europe to affect the global economy as a factor in its decision.
  • Domestic economic data released over the month was mixed.
    • GDP expanded at 0.5% qoq pace in the March quarter, less than half the upwardly revised 1.1% rate of advance in 4Q09.
    • Employment increased by 26,900, resulting in a fall in the unemployment rate to 5.2%.
    • Consumer confidence (as measured by the Westpac-Melbourne Institute) slumped for the second straight month, falling 5.7%.
    • The NAB survey showed business confidence fell for a third straight month. The index fell to +5 (expected +11).
    • Housing finance commitments fell 2.8% in April continuing to reflecting the phasing down of the First Home Buyer Grant.
  • In the US, key economic releases were largely negative.
    GDP grew at an annualised rate of 2.7% in the March quarter (revised down from 3.2%)
    • The FOMC left interest rates on hold at 0.25% in light of continued concerns regarding economic growth including low rates of resource utilisation, subdued inflation trends and stable inflation expectations.
    • May non-farm payrolls growth was considerably weaker than expected, increasing by just 41,000 (expected 188,000).
    • Retail sales fell 1.2% in May, breaking a seven-month stretch of increases.
    • The US ISM manufacturing expanded for a tenth straight month, posting a reading of 59.7.
  • In China.
    • The People’s Bank of China announced the abandonment of its currency peg with the USD, moving back to a target range against a basket of currencies which was the system employed prior to 2008.
    • GDP rose 11.9% yoy in Q1 about the expected rate of 11.7% due to solid investment and private consumption growth.
    • Manufacturing activity expanded in May for the 15th straight month.
  • Crude oil (WTI) rose by 1.7% for the month to finish at US$75.25 per barrel. Gold gained 2.2% to finish at US$1,243/oz.


Australian Shares

June saw Australian shares post their third consecutive monthly decline, with the S&P/ASX 300 Accumulation Index falling 2.6% and down 11.1% for the quarter. The financial year saw a stark contrast between a strong finish to 2009 and a poor first half of 2010. Over 12 months the local market returned a strong 13.1%.

Over the month there was volatility in the market due to continuing concerns about European sovereign debt, moderating global growth expectations and the Federal Government’s proposed RSPT. Positives such as the RBA leaving the domestic cash target unchanged, a new Prime Minister being announced (ensuing talk about a possible softening of the RSPT) and a deal being struck between Telstra and the government on the National Broadband Network were not enough to turn market sentiment.


Overseas Shares

In aggregate, overseas shares returned -4.2% for the month for an unhedged Australian investor as measured by the MSCI World ex Aus Index, over 12 months the return on an unhedged AUD basis was +5.2%. Growth stocks (-3.6%) outperformed Value stocks (-4.3%) in AUD terms over the month, 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 -5.2%, the Dow Jones Industrial Index -3.4% and the NASDAQ Composite Index -6.5%, all in local currency terms. In Europe, the FTSE 100 (UK) returned -5.0%, the DAX 30 (Germany) 0.0% and the CAC 40 (France) -1.5% in local currency terms. In Asia, the Chinese Shanghai Composite Index returned -7.5%, Hong Kong’s Hang Seng +2.2%, India’s BSE 100 Index +4.4% and the TOPIX (Japan) -5.2%, again all in local currency terms.

Emerging markets lost 1.4% over the month, however over 12 months gained 17.9%.


Property

Domestic listed property trusts (A-REITs) returned -1.0% for the month, bringing the 12 month return to 20.3%. Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index) fell by 2.1% for the month but has gained 27.1% over 12 months.


Fixed Interest

The UBS Australia Composite Bond Index gained 1.4% for the month and 7.9% over 12 months. The Citigroup World Government Bond (ex-Australia) Index gained 1.1% and 9.2%, respectively over the month and year, whilst the Barclays Capital Global Aggregate Bond Index rose 1.3% and 11.4%, both on a fully hedged basis.


Currency

The AUD was mixed against major trading partner currencies in June. The local currency appreciated 0.7% against the US Dollar and 0.9% against the Euro. Conversely, the AUD depreciated 2.1% against the Yen, 2.2% against the Pound Sterling and 0.3% on a trade weighted basis.



 

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