Investment commentary - 30 April 2013

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

Global equity markets moved higher over April on the back of favourable central bank policies despite the general slow down in the global economy.

In Europe, the ECB reduced interest rates down to record lows in response to the ailing conditions within the Eurozone while the Bank of Japan followed through their promise of introducing bold accommodative policies aimed at meeting their new inflation target. In the US, a set of strong corporate earnings and the Fed's commitment to delay any reduction in the pace of asset purchases until 2014 further supported market sentiment. However, US economic data disappointed the market with Q1 2013 GDP figures coming in below market consensus. In China, softer economic data particularly Q1 2013 GDP figures weighed heavily on fundamental concerns over the strength of the world's second largest economy.

Locally, the RBA surprised the market with a 25bps interest rate cut down to a record low of 2.75% expressing concern over the strength of the Australian dollar.


Significant developments over the month were:

  • The RBA lowered the official cash rate by 0.25 bps to 2.75% at their May meeting. The key motivation to the easing decision was to address the stubbornly high Australian dollar that continues to hurt the non-mining sectors of the economy.
  • Australian CPI was weaker than expected at 2.5% for the year to March, on a seasonally adjusted basis. This partially facilitated the recent interest rate decision by the RBA.
  • Australian unemployment fell 0.1% in April to 5.5% on a seasonally adjusted basis beating market expectations of 5.6%. The participation rate increased 0.2 pts to 65.3% from March.
  • The initial US GDP estimate for Q1 2013 fell short of market expectation at 0.6%, bringing the annualised figure to 2.5% despite rebounding from the December quarter lows. US manufacturing activity also softened in April as the ISM business survey posted 50.7 from 51.3 in March.
  • US unemployment fell to a four-year low in April to 7.5% from 7.6% in March while the US housing market, as measured by the S&P/Case-Shiller House Price index, accelerated to 9.4% over the year to February 2013 compared to -3.5% one year ago.
  • In China, Q1 2013 GDP disappointed at 7.7% over the year compared to 7.9% over the year to Q4 2012. Consumption growth surprised to the downside, as the government continues to discourage luxury spending along with new controls on residential property lending.
  • The Chinese manufacturing sector, as measured by the HSBC Chinese Manufacturing PMI Index, slipped to 51.1 in April from 53.5 in March while CPI accelerated at a faster-than-expected 2.4% over the year to April compared to 2.1% in March.
  • Eurozone unemployment reached another record high at 12.1% in March, up from 12.0% in February. The manufacturing sector also weakened to 46.7 in April from 46.8 in March.
  • The ECB lowered their main refinancing rate 25 bps to a record low of 0.5% in response to the ailing economic conditions. This boosted confidence in the market on the back of the ECB's commitment for another round of easing should conditions continue to deteriorate.
  • Commodity prices were softer over the month as concerns over China's economic growth emerged. Oil prices fell 4.1% to $93.2/bbl and gold prices dropped 8.0% finishing the month at US$1,467.64/oz. Iron ore prices was relatively flat over April falling 0.7% to US$137.0/MT.


Australian Shares

The Australian equity market recovered from last month's sluggish performance predominately led by the financial sector. The S&P/ASX 300 Accumulation Index returned 4.3% over April. By sector, Telecom Services (+10.6%), Financials (excluding property) (+8.6%), Property Trusts (+8.2%), Consumer Staples (+7.1%), Consumer Discretionary (+4.9%) were the best performers over the month while Materials (-4.4%) was the largest detractor of performance. Underlying the market's performance were ANZ (+12.1%), Telstra (+11.0%), NAB (+10.8%), Westpac Banking (+10.4%) and Suncorp Group (+9.8%). The S&P/ASX Small Ordinaries Index fell 4.7% over the month, once again underperforming the large cap index.


Overseas Shares

Global equity markets were predominately stronger in April. The broad MSCI World ex Australia Index rose 3.5% in unhedged terms and 2.9% in hedged terms as the A$ fell 0.4% against the US$ in the month. More specifically, based on the relative performance of the S&P Developed ex-Australia Large mid cap indices, global Growth (+3.1%) underperformed their Value (+4.0%) counterparts in A$ terms. Most global sectors were positive with again the exception of Materials (-0.7%). The best performing sectors over April were Utilities (+7.7%), Telecommunications (+7.6%), Financials (+6.1%) and Healthcare (+4.5%).

US stocks continued to reach new record highs over April with the S&P 500 returning 1.9% as markets grew increasingly comfortable the Fed is likely to maintain its current quantitative easing policies. The more concentrated Dow Jones Industrial Average and NASDAQ also rose 1.9% in local currency terms. Performances in European markets finished in positive territory as the ECB acted with a set of easing monetary policies in response to ailing economic conditions. The CAC 40 (France) advanced 3.7%, the FTSE 100 (UK) 0.6% higher and DAX 30 (Germany) rose 1.5% all in local currency terms. Markets saw mixed returns in Asia. The Japanese TOPIX continued its rally (+12.6%) after the new Bank of Japan (BOJ) Governor Kuroda followed through on his commitment using aggressive policies to flight deflation. The Chinese Shanghai Composite Index fell in April (-2.6%) while the Hong Kong Hang Seng Index and the Indian BSE 500 rebounded 2.0% and 4.1% respectively all in local currency terms.

In A$ terms, the global small cap sector was stronger, rising 1.7%, while emerging markets rebounded this month to 1.2%.



Real Estate Investment Trusts (REITs) had a positive month in April; Domestic REITs (as measured by the S&P/ASX 300 A-REIT Index) rallied 8.2% and Global REITs (as measured by the FTSE EPRA/NAREIT Global Developed Index) gained 7.7% on a fully hedged basis. The unlisted property sector (measured by the Mercer/IPD Australian Pooled Property Fund Index increased 0.4% over April on the back of relatively strong returns from the Industrial sector (+1.4%).


Fixed Interest

Sovereign bond yields fell across the major markets with the exception of Japan. Ten-year bond yields fell: in Australia (-33 bps to 3.09%), US (-18 bps to 1.68%), UK (-9 bps to 1.67%) and Germany (-8 bps to 1.20%) but increased in Japan (+5 bps to 0.60%).

Australian bonds fell over the month, with the UBS Treasury Bond Index and UBS Semi-Government Index returned 1.6% and 1.7% respectively while the UBS Credit Index rose 1.2%. Global Bond returns saw positive movements over the month. The Citigroup World Government Bond (ex-Australia) Index and the Barclays Capital Global Aggregate Bond Index both rose 1.3% on a fully hedged basis.



The Australian dollar depreciated against the major currencies during April with the exception of the Japanese Yen. The Australian dollar fell 0.4% relative to the US dollar finishing April at US$1.038. Against other currencies, the A$ also appreciated 3.2% against the Yen and depreciated 3.0% relative to the Euro and 2.9% against the Pound Sterling. On a trade weighted basis, the local currency depreciated 0.9% over the month.


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