Investment commentary - 30 June 2009

15/07/2009
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Provided by Mercer. The information in this article does not necessarily reflect the views of the Trustee.


The rally across global equity markets lost momentum in June as investors revaluated the sustainability of the economy recovery. Domestic bond yields continued to rise as hopes of an RBA rate cut fell and US ten year bond yields also rose. Spreads between Australian and US ten year bonds continued to widen, resulting in appreciation of the Australian Dollar. Domestic listed Property Trusts continued to stabilise posting a third consecutive monthly gain.

Australian Shares

The month of June saw the Australian share market fluctuate with substantial volatility. The S&P/ASX 300 index reached a seven-month high in mid-June, fuelled by capital raisings, booming commodity prices and better than expected economic data from both US and China. Increased consumer confidence led the ASX 300 to post a gain of 4.0% over the month of June. Small caps (+3.1%) lagged behind their large (+4.0%) and mid cap (+4.1%) counterparts and the broader index.

Financials ex Prop (+7.1%) as well as defensive sectors Healthcare (+7.5%) and Telecom Services (+8.6%) post strong gain over the month, as investors took stock of cyclical sectors and eye for solid earnings. Conversely, Utilities (-2.5%) lost ground in June and Materials (-0.2%) finished as the lowest contributor as resource stocks fell out of favour.

Commonwealth Bank (+11.0%) led the positive contributors list which was dominated by Financials and defensive sector stocks. Gold miners Newcrest Mining (-7.4%) and Lihir Gold (-9.8%) topped the negative contributors list as safe haven demand for gold faded alongside an increased appetite for risk. Nufarm (-24.9%) also saw massive sell offs after profit forecasts were revised significantly downwards.

Overseas Shares

The month of June saw the global share market lose momentum in the midst of profit taking and lowered expectations of a global economic recovery in the second half of 2009. The MSCI World ex Australia lost 0.2% in local currency terms. Returns for unhedged Australian investors were eroded to -1.6% as better-than-expected economic data and fading expectations of further RBA rate cuts led to an appreciation of the Australian dollar against most major currencies. In the US, the S&P 500 index returned 0.0%, the Dow Jones -0.6% and the NASDAQ +3.4%, all in local currency terms. In Europe, the FTSE 100 (UK) returned -3.8%, the DAX (Germany) -2.7% and the CAC (France) -4.2% in local currency terms. Asian markets were mixed. The Chinese
Shanghai Composite returned +11.0%, Hong Kong's Hang Seng +1.1%, the Nikkei (Japan) +4.6% and the India BSE 200 Index returned -1.4%, again all in local currency terms.

Property

Domestic listed property trusts (A-REITs) advanced further returning +4.9% for the month after rising in May. Over 12 months they are still significantly down, returning -42.1%. Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index) returned +0.4% over the month and over 12 months returned -37.5%.

Fixed Interest

Australian bond yields rose in June, reflecting more aggressive expectations of an RBA rate rise in 2010/11 and a rise in benchmark US 10 year bond yields. The UBS Composite bond index returned -0.6% for the month. The Australian 10 year bond yields climbed up 24 bps, which widened the spread between Australian and US 10 year bonds to 204bps. The Citigroup World Government Bond (ex Australia) Index and the Barclays Capital Global Aggregate Bond Index returned +1.0% and +1.1% respectively, on a fully hedged basis over the month.

Currency

The Australian Dollar strengthened further in June. The local currency returned +1.0% against the US Dollar, +2.1% against the Yen, +1.9% against the Euro, and +2.2% on a trade weighted basis but depreciated 1.1% against the Pound Sterling.

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