Investment commentary - 30 April 2012



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The absence of any meaningful positive catalysts resulted in muted returns locally and a moderation across most global listed markets.

The optimism that spurred market returns upwards during the first quarter of 2012 subsided through April, as soft economic growth data from China and the US doused investor confidence, along with a downgrade in Spain's long-term debt rating. Locally, the Board of the Reserve Bank of Australia held interest rates once again, and CPI figures released towards the end of the month all but solidified market expectations of a rate cut in May.

Significant developments over the month were:

  • The Board of the Reserve Bank of Australia left the official cash rate on hold at 4.25%, the RBA noting that although sentiment had improved, and Australia's aggregate demand increased at its fastest rate in four years, capital markets were still sensitive to potential adverse shocks posed by Europe.
  • The Australian Bureau of Statistics (ABS) released March quarter CPI figures, which indicated an increase of 0.1% over the quarter, compared with no change in the December 2011 quarter. This brought the annualised figure to a modest 1.6%, with the market all but concluding a rate cut in May would eventuate.
  • The ABS also released domestic unemployment figures during April, indicating that Australia's seasonally adjusted unemployment rate was steady at 5.2 per cent in March.
  • In the US, the Federal Reserve released The Beige Book, stating that growth was “modest to moderate”, which was the same description used in the February report. The survey noted better retail spending and some improvement in hiring activity. Also, towards the end of the month, US GDP figures were released. The figures showed that the US economy grew at an annual rate of 2.2% in Q1 2012, which disappointed the market coming in below consensus estimates.
  • Despite widespread attempts to curb Eurozone national debts, ratings agencies remained unconvinced. Standard & Poor's downgraded Spain two notches to BBB+ (outlook negative). S&P expressed concern about the circular issues of recession and attempts to rein in debt as a percentage of gross domestic product.
  • The Chinese economy grew by 8.1%, easing from 8.9% in the following quarter, which was the softest pace Asia's largest economy has posted in nearly three years. Driving this fall was a reduction in domestic Chinese demand, and a contraction in global demand, particularly from European nations.
  • The price of crude oil rose during the month, with the cost per barrel finishing the month of April at US$104.9/bbl, up 1.8% for the month. There was downward pressure on precious metals, as the spot price of gold fell to US$1,660.3/oz and silver tumbled to US$31.2/oz, returning -0.2% and -3.8% respectively. On a trade weighted basis, the Australian dollar appreciated 0.1%.

Australian Shares

Despite soft economic releases from the US, China and continued Eurozone uncertainty, the local market remained resilient in light of these headwinds with the benchmark S&P/ASX 300 Index returning +1.3% during April. Sector rotation was evident, with a defensive bias clearly favoured by investors, and blue-chips preferred over smaller cap stocks. Subsequently, Large Cap stocks (+1.7%) outperformed their Mid Cap (+0.3%) and Small Cap (-0.9%) counterparts.

The flow of funds from Energy (-0.6%) and Material (-0.3%) stocks was evident, and Telecommunication (+7.2%) stocks benefitted, becoming the strongest performing sector on the back of a rebounding Telstra (+8.3%) share price. Property Trusts (+5.4%) also performed well, with strong returns from Westfield (+5.1%) providing support to the sector.

Overseas Shares

In local currency terms, the MSCI World ex Australia Index returned -1.6%, the unhedged index had a similar return of -1.7% for the month. In A$ terms and based on the S&P Developed ex-Australia Large Medium Cap Value and Growth indices, Growth (-1.2%) continued to outperformed Value (-2.0%) stocks on a relative basis. Emerging markets returned -1.7% in A$ terms over the month (as measured by the MSCI Emerging Markets Index).

In the US, the S&P500 Composite Index snapped a four month run of consecutive rises, falling -0.6%. The more concentrated Dow Jones Industrial Average posted a modest gain of 0.2%, whereas the NASDAQ fell 1.5% on the back of falling technology stocks. Elsewhere, in Europe, downside risks were at the forefront of investor's minds during April, as the FTSE 100 (UK) returned -0.3%, the DAX 30 (Germany) -2.7% and the CAC 40 (France) tumbled -5.8%, all in local currency terms. Despite soft local growth figures, the Chinese market (Shanghai Composite Index) surged, rising 5.9%, and similarly, Hong Kong's Hang Seng Index rose 2.7%. The same can't be said for Japan, where the TOPIX experienced a moderation from the previous months rally, falling 5.9%.


Real Estate Investment Trusts (REITs), particularly domestic REITs, were the standout listed asset class for the month. Domestic REITs as measured by the benchmark S&P/ASX 300 A-REIT Index finished the month up an impressive 5.4%, with strong returns from Westfield underlying the performance. The FTSE EPRA/NAREIT Global Developed Index (G-REITs) returned 2.2% on a fully hedged basis.

Fixed Interest

Widespread sovereign downgrades across the globe continued to put upward pressure on Australian Commonwealth Government Bonds. In response to a sovereign downgrade issued to Spain's credit rating by S&P, risk aversion was high towards the end of the month, and bond markets benefitted once again as investors sought quality assets. Subsequently, the domestic bond market posted positive returns, with the UBS Treasury Bond Index returning +2.1%, outperforming the UBS Composite Bond Index (+1.6%) and UBS Credit Index (+1.2%). Global bond returns were also positive, although not to the same extent. The Citigroup World Government Bond (ex-Australia) Index gained 0.9% during the month and similarly, the Barclays Capital Global Aggregate Bond Index appreciated 1.0 %, both on a fully hedged basis.


Despite a softening of Chinese growth prospects and expectations of an imminent cut in the RBA's official cash rate, global investors' appetite for Australian bonds continues to provide support. In April, the Australian dollar appreciated 0.5% against the US$, and 1.1% versus the Euro, however fell versus the Yen (-2.5%) and the Pound Sterling (-1.1%). On a trade weighted basis, the Australian dollar appreciated 0.1%.


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