Investment commentary - 30 September 2009



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

The global equity market posted another solid return, supported by improving manufacturing activities worldwide, upbeat economic indicators and supportive initiatives from the G20 meetings held during September.

Despite falling base metals prices, the Australian equity market delivered a strong gain, attributable to the buoyant Financials and Consumer Discretionary sectors driven by better than expected economic data. The domestic yield curve flattened further with the market pricing in rate hikes over the short term. The Australian Dollar appreciated against most major currencies. Domestic listed property trusts posted another strong monthly gain with confidence in the sector back on track.

Significant developments over the month were:


  • The RBA again left official rates unchanged at 3.00% in early September, but the minutes from the RBA meeting indicated a rate hike is imminent, reiterating that "economic conditions in Australia have been stronger than expected" while "the likelihood of inflation being persistently below the target now looks low."
  • The US Federal Open Market Committee left the Fed Fund rate target unchanged at 0% to 0.25%, noting that economic conditions would warrant exceptionally low levels for the Fed Fund rate over an extended period of time. The Fed also decided to start reducing the size and maturity of the existing liquidity programs.
  • Domestic economic data released over the month was largely positive. Quarter 2 2009 GDP rose 0.6%. Retail, although falling by 1.0% in July, climbed up 0.9% in August, benefiting from a stronger discretionary sector. The unemployment rate was steady at 5.8% in August, beating market expectations of 5.9%. On the downside the Quarter 2 2009 current account deficit worsened to AUD -13.3bln and the trade deficit blew out to AUD1.6bln.
  • US economic data released over the period was mixed. The August figures for ISM manufacturing, industrial production, non-farm payrolls and retail sales all beat expectations, while the quarter-on-quarter change of second quarter GDP dropped by only 0.7%, compared with the forecasted 1.2% decrease. In contrast, the unemployment rate worsened to 9.7% for August, with the ADP employment figures also below expectations. The July trade deficit widened to USD 32bln.
  • The G20 meetings held in September ensured that fiscal and monetary stimulus is to be kept in place until growth takes a hold at a sustainable level.
  • Crude oil climbed 0.9% for the month finishing at US$70.6 per barrel.
  • Gold broke through $1,000/oz for the first time in 18 months, and finished the month 5.9% higher at US$1007.4/oz.


Australian shares


The Australian share market delivered the seventh consecutive monthly gain in September. The S&P/ASX 300 index climbed 6.3% for the month, bringing the cumulative return for the last 12 months to 8.5%. Strong domestic equities performance reflected continuing improvements in the Australian economy, with retail sales, second Quarter GDP and the unemployment rate released during the month beating market expectations. Small Cap (+5.1%) stocks underperformed their Mid Cap (+6.1%) and Large Cap (+6.4%) counterparts.

Significant divergences were witnessed across the investment sectors in spite of strong gains for the overall market. Financials, including Property Trusts, contributed 64% towards the index gain, whilst Consumer Disc (+10.6%) was the best performing sector over the month, attributable to strong retail sales and increased consumer confidence. However, resource stocks lagged behind with faltering base metals prices and rising oil inventories. Telecom Services (+0.3%) was the worst performer as the Federal Government announced to seek to split Telstra into two separate businesses.

With strong performance of the Financials sector, unsurprisingly, the Positive Contributors list was dominated by the Big Four banks CBA (+12.5%), ANZ (+15.1%), WBC (+8.2%) and NAB (+8.5%). Conversely, Fortescue Metals (-13.4%) was the worst index contributor after missing to raise as much as $6 bln from Chinese lenders. Despite Woodside Petroleum (+6.6%) providing positive contribution to the index, other energy stocks, led by Santos (-3.8%), were a drag on the broad market index.

Overseas shares

The global share market posted a moderate gain in September, reflecting better-than-expected economic data from around the world and an improving corporate earnings outlook. The MSCI World ex Australia gained +2.9% in local currency terms. But as the Australian Dollar appreciated strongly against most major currencies, returns for unhedged Australian investors were eroded to -0.9%. Small Caps (+1.2%) stocks outperformed the broad market while Value stocks (-1.3%) underperformed their Growth (-0.3%) counterparts and the broad market in AUD terms. In the US, the S&P 500 index returned 3.7%, the Dow Jones +2.3% and the NASDAQ +5.6%, all in local currency terms. In Europe, the FTSE 100 (UK) returned +4.7%, the DAX (Germany) +3.9% and the CAC (France) +3.9% in local currency terms. Results from Asian markets were also strong except for Japan. The Chinese Shanghai Composite returned +4.2%, Hong Kong's Hang Seng +6.2%, the India BSE 200 Index returned +8.5% while the Nikkei (Japan) lost 3.4%, again all in local currency terms.


Domestic listed property trusts (A-REITs) posted another solid return of +10.0% for the month, after rising 16.1% in August on the back of capital raisings and debt reductions. Returns over the last 12 months however are still significantly down, returning -23.0%. This pattern was also prevalent in Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index), where the return for the month was +4.5% but is still down -18.7% over 12 months.

Fixed interest

The UBS Australia Composite Bond index returned 0.7% for the month and is up 7.1% over the year. The Citigroup World Government Bond (ex-Australia) Index and the Barclays Capital Global Aggregate Bond Index returned +0.7% and +1.1% respectively, on a fully hedged basis over the month.


The Australian Dollar appreciated against most major currencies in September. The local currency returned +4.7% against the US Dollar, +1.0% against the Yen, +2.8% against the Euro, +6.7% against the Pound Sterling, and +2.9% on a trade weighted basis.


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