Investment commentary - 30 September 2010

15/10/2010
Provided by Mercer. The information in this article does not necessarily reflect the views of the Trustee.

September saw equity markets rally, despite continued uncertainty over the global economic outlook. The announcement of possible monetary stimulus in the US helped underpin some recovery in investor risk appetite. US bond yields rose over the month whilst global bond returns were subdued. Domestic bond performance reflected the different economic landscape to abroad, Commonwealth Government bond yields rose substantially over the month as markets priced in possible rate rises for later in the year. Australian bond returns were negative. Australian Listed Property Trusts (A-REITs) underperformed the rising Australian sharemarket.

Significant developments over the month were:

  • A new government was formed in Australia with the Labor Party reaching a deal with three independents and a member of the Green Party to form a minority government.
  • The RBA kept its cash rate target unchanged at 4.50% through the quarter, reaffirming the appropriateness of a long-term average level of interest rates with expected inflation within the target range and growth close to trend.
  • Australian Q2 GDP data was released and continued to show the strength of the local economy. Q2 GDP growth was 1.2%/quarter, above the market expectation of 0.9%/quarter, taking the annual growth rate to 3.3%.
  • Domestic unemployment remained steady at 5.1%.
  • The Australian dollar rallied 8.8% to 96.8 US cents.
  • The Federal Open Market Committee left the target range for the US cash rate unchanged at 0-0.25%. The FOMC released its September statement announcing that it was “prepared to provide additional accommodation if needed.”
  • The Japanese economy saw a leadership challenge for the Prime Ministership occur, Naoto Kan retained leadership advocating fiscal discipline and job creation.
  • The oil price rose 11.5% to finish at US$79.85/bbl. Gold rose 4.4% to US$1301.47/oz.


Australian Shares

After August saw Australian equity markets sold off, the local market rallied in September on the back of improving international sentiment and strong domestic economic data. The S&P/ASX300 rose 4.8% to finish the quarter up 8.3%.

Similar to recent months there was quite a divergence in returns. Small cap stocks (+9.1%) outperformed their Mid cap (+5.1%) and Large cap (+4.3%) counterparts for the third successive month. The Resources (+7.0%) sector posted very strong gains over the month as a result of strong base metal prices and watering down of the Government’s resources profit tax proposal.

BHP Billiton (+5.3%) in direct contrast to last month, topped the positive contributors list.


Overseas Shares

In aggregate, overseas shares returned +0.3% for the month for an unhedged Australian investor as measured by the MSCI World ex Aus Index. Taking into account the strong appreciation of the AUD (on a trade weighted basis), the return in local currency terms was +7.1%. Growth stocks (+0.8%) outperformed Value stocks (0.0%) 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 +8.9%, the Dow Jones Industrial Index +7.9% and the NASDAQ Composite Index +12.1%, all in local currency terms. In Europe, the FTSE 100 (UK) returned +6.4%, the DAX 30 (Germany) +5.1% and the CAC 40 (France) +6.4% in local currency terms. In Asia, the Chinese Shanghai Composite Index returned +0.6%, Hong Kong’s Hang Seng +9.4%, India’s BSE 100 Index +10.4% and the TOPIX (Japan) +3.9% all in local currency terms.

Emerging markets gained 2.1% over the month in AUD terms.


Property

Domestic listed property trusts (A-REITs) returned -0.9% for the month. Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index) returned +6.4%.


Fixed Interest

The UBS Australia Composite Bond Index returned -0.9% for the month. The Citigroup World Government Bond (ex-Australia) and the Barclays Capital Global Aggregate Bond Index returned 0.0% and +0.2%, both on a fully hedged basis.


Currency

The A$ appreciated strongly over September. The local currency rose 8.8% against the US Dollar, 8.2% against the Yen, 6.1% against the Pound Sterling and 1.3% against the Euro. On a trade weighted basis the dollar gained 5.7%.


 

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