Investment commentary - 28 February 2011

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

Global Equity markets were positive over February despite giving back some of the months earlier gains due to concerns over political unrest in the Middle East and North Africa and rising commodities prices. Markets moved higher on the back of a favourable macroeconomic environment in the US and Europe, increased liquidity due to quantitative easing in the US and greater M&A activity. Global and Domestic Bonds posted positive returns.

Significant developments over the month were:

  • Domestic economic data highlights: Unemployment rate at 5.0% for February and Q4 real GDP growing 0.7% qoq and 2.7% yoy. The RBA left official interest rates on hold at 4.75% in February and March, stating that “the currently restrictive stance of monetary policy remained appropriate in view of the general macroeconomic outlook.”
  • US and Euro economic data continued to indicate that the world's two largest economies were expanding. In the US, February saw 192,000 jobs created to lower the unemployment rate to 8.9%, down from 9.4% in December 2010.
  • In China, national accounts data for the December quarter showed the Chinese economy was continuing to expand at a rapid pace, with estimates of quarterly annualised growth exceeding 12%. Chinese authorities announced further tightening measures. Interest rates were tightened by 25bps to 6.06% and the Reserve Requirement Ratio (RRR) was lifted to reduce liquidity and lending.
  • Tensions in the Middle East saw the oil price rise a strong 5.3% to finish at US$97.00/bbl. Gold gained 6.2% to US$1415.05/oz.

Australian Shares

Australian shares were again positive in February after the local market overcame concerns in the Middle East and higher oil prices to focus on the positives from the reporting season. The S&P/ASX 300 returned +2.3% for the month.

Large cap stocks (+2.5%) outperformed their Mid cap (+2.3%) and Small cap (+1.3%)counterparts for the second month in succession. Unsurprisingly given the rise in the oil price, Energy (+3.6%) stocks made a strong positive contribution, Materials (+3.7%) also performed strongly. Conversely, Healthcare (-3.2%) stocks made the strongest negative contribution.

Strong sector performance saw a number of resource companies dominate the positive contributors list, headed by BHP (+4.4%). Wesfarmers (-2.4%) was the largest negative contributor over the month.

Overseas Shares

In local currency terms, the MSCI World ex Aus index returned +2.9%. Due to the appreciation of the A$, the return for unhedged Australian investors was eroded to +1.3%. The month of February saw Value stocks (+1.2%) outperform Growth stocks (+1.0%) in A$ 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 +3.4%, the Dow Jones Industrial Index +3.2% and the NASDAQ Composite Index +3.2%, in local currency terms. In Europe, the FTSE 100 (UK) returned +2.6%, the DAX 30 (Germany) +2.8% and the CAC 40 (France) +2.6% in local currency terms. In Asia, the Chinese Shanghai Composite Index returned +4.1%, Hong Kong's Hang Seng -0.5%, India's BSE 100 Index -3.2% and the TOPIX (Japan) +4.6% again in local currency terms.

Emerging markets returned -3.0% over the month in A$ terms.


Domestic listed property trusts (A-REITs) returned +3.3% for the month. Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index) returned +2.7% during February.

Fixed Interest

The UBS Australia Composite Bond Index returned +0.4% for the month. The Citigroup World Government Bond (ex-Australia) and the Barclays Capital Global Aggregate Bond Index returned +0.3% and +0.4%, over the month respectively.


The A$ appreciated over January. The local currency rose 2.1% against the US Dollar, 2.1% against the Yen, 0.6% against the Pound Sterling, 1.4% against the Euro and 2.0% on a trade-weighted basis.

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