Financial market update - December 2011

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

A typical growth portfolio returned around 0.1% for the month of December 2011. Here's a summary of the performance of the major asset classes over the month.

Australian Shares

The Australian share market (S&P/ASX 300 Accumulation Index) ended the 2011 calendar year down 1.4%. Resource stocks returned -4.7%, dragging the market lower as a result of falling commodity prices and concerns on the outlook for China.

Telecommunications and Utilities were the strongest performing sectors over the month, returning 5.0% and 2.5% respectively. Small companies were weaker, returning -4.3% as small resources suffered from diminished demand.

Overseas Shares

Global share markets (MSCI World ex Australia Index) were flat over December 2011, returning 0.0% in US$ terms. Australian-based investors benefited from a fall in the Australian dollar (A$) to achieve a return of 0.2% in A$ terms.

Returns for the global sectors were generally modest over the month, however Materials fell the furthest, returning -4.6%, whilst the defensive sectors of Healthcare and Consumer Staples gained the most, returning 3.2% and 1.5% respectively.

Emerging markets were weaker than their developed market counterparts, returning -1.0% as investors showed a lack of willingness to take on additional risk.

Real assets

Both property and infrastructure fared well in December 2011, but commodities fell. Agricultural Commodities returned -0.6% in US$ terms and Broad Commodities -3.4% in A$ terms.

Global Listed Infrastructure returned 2.2%, whilst Global Listed Property returned 2.3%, both in A$ terms.

Fixed Interest

Central bankers around the world kept cash rates steady in December, with the exception of Australia, where the cash rate was cut for a second successive month by 25bps to 4.25%.

The lack of an apparent solution to Europe's debt crisis meant bond yields continued to fall.

Ten-year bond yields fell over the month as investors remained sceptical: US (-19bps to 1.88%), Japan (-10bps to 0.96%), Germany (-46bps to 1.78%), UK (-32bps to 1.98%) and Australia (-22bps to 3.71%). Two-year yields also fell: US (-3bps to 0.23%), UK (14bps to 0.35%), and in Germany (-18 bps to 0.13%).

Both Australian sovereign bonds and overseas sovereign bonds were positive, returning 1.0% and 2.1% respectively (both in A$ hedged terms) as investors stayed away from share markets.

Australian inflation linked bonds and global inflation linked bonds also posted solid returns, delivering 2.0% and 2.4% respectively (again in A$ hedged terms). Global Credit also performed well to return 2.4% (A$ hedged) for the month.


The $A remained steady throughout December 2011 to end the month and the year at US$1.0252. This translated into a 0.2% fall and the local dollar also depreciated marginally relative to the Japanese Yen (-1.1% to ¥78.9) but appreciated relative to the Euro (+3.5% to €0.79).



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