Investment commentary - 30 April 2011

24/05/2011
Provided by Mercer. The information in this article does not necessarily reflect the views of the Trustee.

Global equity markets moved higher over April recovering last month's losses. A positive earnings season in the US and signs of further recovery in the global economy drove markets higher. Australian equities finished in the negative due to selling on the back of a strong A$. Global and Domestic Bonds posted positive returns after yields decreased.

Significant developments over the month were:

  • Domestic economic data was highlighted by Q1 2011 CPI data. Headline inflation rose 1.6% qoq, which was larger than expected. Annual headline inflation
    is at 3.3% yoy.
  • The RBA left interest rates on hold at 4.75% in April and May, and remain happy with the “mildly restrictive stance of monetary policy.”
  • US economic data released continued to indicate an improvement in the macro environment. The unemployment rate dropped to 8.8%, housing starts
    improved beyond consensus and consumer confidence measures were robust.
  • The US Federal Reserve left interest rates on hold at 0.25% and continued its quantitative easing program, due to finish in June.
  • Standard and Poor's placed the US's long-term government debt rating on a negative outlook.
  • Chinese economic data released in April saw GDP grow 9.7% yoy and inflation at 5.4% yoy, both above consensus. Further tightening measures were
    implemented including raising interest rates (by 25 basis points to 6.31%) and increasing bank reserves, for the fourth time this year.
  • The Portuguese government requested a formal bailout from the European Union (EU) and International Monetary Fund (IMF).
  • The European Central Bank (ECB) increased interest rates to 1.25% from a record low of 1% to combat inflationary pressures.
  • The oil price rose 6.5% to US$113.67/bbl.


Australian Shares

The local market rallied early in the month, on the back of ongoing strength in offshore markets before declining in the second half of April to finish marginally down. The sharp rise of the Australian dollar held back earnings for a number of companies and contributed to the sell off. The S&P/ASX 300 index returned - 0.3% for the month, to finish the quarter +2.7%.

Large cap stocks (+0.2%) outperformed their Mid cap (-2.0%) and Small cap (-2.6%) counterparts for the fourth month in succession.

Telecom Services (+3.2%) and Financials ex Prop (1.9%) outperformed, driven by the strong performance of Telstra (+4.0%) and the Big Four banks.

Overseas Shares

In local currency terms, the MSCI World ex Aus index returned +2.4%. Due to the appreciation of the A$, the return for unhedged Australian investors was eroded to -1.5%. The month of April saw Growth stocks (-1.3%) outperform Value stocks (-1.6%) in A$ 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 +3.0%, the Dow Jones Industrial Index +4.1% and the NASDAQ Composite Index +3.4%, in local currency terms. In Europe, the FTSE 100 (UK) returned +3.0%, the DAX 30 (Germany) +6.7% and the CAC 40 (France) +3.3% in local currency terms. In Asia, the Chinese Shanghai Composite Index returned -0.6%, Hong Kong's Hang Seng +1.0%, India's BSE 100 Index -1.0% and the TOPIX (Japan) -2.0% again in local currency terms.

Emerging markets returned -2.6% over the month in A$ terms.

Property

Domestic listed property trusts (A-REITs) returned +0.3% for the month. Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index) returned +3.5% during April.

Fixed Interest

The UBS Australia Composite Bond Index returned +0.5% for the month. The Citigroup World Government Bond (ex-Australia) and the Barclays Capital Global Aggregate Bond Index returned +1.0% and +1.2%, over the month respectively.

Currency

The A$ appreciated against all currencies over April. The local currency rose 5.8% against the US Dollar, 3.6% against the Yen, 1.7% against the Pound Sterling and 1.2% against the Euro. The A$ rose 3.4% on a trade-weighted basis.

 

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