Investment commentary - 30 September 2011

18/10/2011
Provided by Mercer. The information in this article does not necessarily reflect the views of the Trustee.

Soft economic numbers and the continued threat of a global recession, ensured investors in most equity markets witnessed negative returns during September.

Efforts made by Europe and US policy makers to quell market concerns proved ineffective, as investors looked through the US Fed's attempt to lower interest rates even further and modifications to Greece's bailout package, and levelled their focus on the possible downside risks of a sovereign default in the Eurozone.

Significant developments over the month were:

 
  • The RBA held the cash rate at 4.75%, adopting a more neutral stance than previous months because of non-mining industry softness. Inflation targeting will continue on a pragmatic basis, as the central bank indicated they are willing to move above their target CPI bands if they are confident markets will correct back without monetary intervention.
  • ANZ Bank released their Job Ads figure, revealing that job advertisements on the internet and in newspapers decreased by 0.6% in August. Annual growth in total job advertisements decelerated to 6.1% y/y. In trend terms, total job ads fell by 0.5% m/m in August.
  • The seasonally adjusted Australian unemployment rate increased 0.1 percentage points to 5.3 per cent in August.
  • US President, Barack Obama, announced a $447 billion jobs proposal in an attempt to “jump start” the US economy.
  • The US Federal Open Market Committee concluded their two day meeting by announcing a policy move colloquially known as “Operation Twist”. The Fed's plan is to buy longer-dated US Treasuries with the aim of putting downward pressure on long-term interest rates, to encourage near-term business spending.
  • The China's Manufacturing PMI, a gauge of nationwide manufacturing activity, was unchanged at 49.9 in September compared with 49.9 in August. This indicated marginal contraction in manufacturing for the month, but went someway to assure investors that recent tightening measures taken by the People's Bank of China is not steering the economy towards a 'hard landing'.
  • The price of crude oil continued to fall on the back of global growth concerns, returning
    -11.0% for the month to finish at 79.1 US$/bbl. Gold gave back gains posted in earlier months, falling 11.4% to $1,617.8 US$/oz


Australian Shares

The benchmark S&P/ASX 300 Index suffered its largest monthly loss in the past 12 months, dropping 6.3% for the month, to finish the quarter down 11.6%.

Large Caps (-5.3%) outperformed their Mid Cap (-9.6%) and Small Cap (-10.6%) counterparts.

Telecom Services (+2.1%) and Consumer Staples (+2.5%) were the outstanding sectors, continuing the positive momentum established in previous months, as investors favoured defensive plays, with Telstra (+3.1%) and Wesfarmers (+3.2%) the largest positive contributors to the benchmark Index return. Resources sectors were hardest hit in the market downturn, as Materials (-12.9%) and Energy (-8.3%) dragged the Index down. BHP (-11.7%), Newcrest Mining (-15.3%) and Rio Tinto (-14.7%) were the largest negative contributors for the month.

Overseas Shares

In Australian dollar terms, the MSCI World ex Australia Index returned +0.9% for the month, buoyed by a depreciating Australian dollar relative to other major currencies. In local currency terms, the benchmark returned -6.1% for the month. Based on the S&P Developed ex-Australia Large Mid Cap Growth and Value Indices, Value stocks (+1.2%) outperformed Growth (+0.6%) for the month also in $A terms.

In the US, the S&P 500 Composite Index was down 7.0%, the Dow Jones Industrials Index returned
-5.9% and the NASDAQ Composite Index -6.3%, in local currency terms.

Risk of sovereign default continued to drive European markets down. The FTSE 100 (UK) returned
-4.7%, the DAX 30 (Germany) -4.9% and the CAC 40 (France) -8.1% in local currency terms.

In Asia, the Chinese Shanghai Composite Index returned -8.1%, Hong Kong's Hang Seng -13.8%, India's BSE 100 Index -1.3% and the TOPIX (Japan) returned -0.3% in local currency terms.

The MSCI Emerging Markets Index was down -5.9% in A$ terms.

Property

Domestic REITs gave back returns posted in August as the benchmark S&P/ASX 300 Property Index finished the month down 4.6%. The FTSE EPRA/NAREIT Global Index that measures Global REITs, returned -10.5% on a hedged basis.

Fixed Interest

Amidst the turmoil experienced in listed equity markets, both domestic and international fixed interest markets continued their positive rally. The local UBS Australia Composite Bond Index finished up 0.9%. Overseas, the Citigroup World Government Bond (ex-Australia) returned 1.6% and the Barclays Capital Global Aggregate Bond Index was up 0.9%, both on a hedged basis.

Currency

The Australian dollar's status as a 'risky' currency was further emphasised as it depreciated against all major international denominations. The local currency fell 9.2% against the US dollar, 8.5% against the Yen, 5.1% against the Pound Sterling and 2.6% versus the Euro. On a trade weighted basis, the Australian dollar depreciated by 5.4%.

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