Global equity markets continued to be volatile in June 2012. Markets were generally up for the month after a negative month in May 2012. Some key developments influencing markets at the moment include:

  • Fears related to the euro-zone’s debt crisis, eased in June as the pro-austerity party’s victory in the Greek election allayed the fears of a Greece exit from the Euro. In addition the promise of a Euro100bn bailout fund to assist Spanish banks eased concerns about Spanish bank solvency.
  • The latest European Summit was received well by the market – in particular the ability of Euro zone rescue funds to be used directly to recapitalise banks and to purchase sovereign bonds to keep down the market rate for new borrowings by European countries.
  • US economic data was weaker with unemployment remaining at 8.2% and US manufacturing activity contracting. The US housing market showed some signs of improvement over the month.
  • The Reserve Bank of Australia (RBA) maintained the official rate at 3.5% pa, due to concern over the European debt crisis moderating slightly.
  • Australian GPD (Gross Domestic Product) growth for the March 2012 quarter was up 1.3% (4.3% up for the year to March 2012) which was well above market expectations.
  • Chinese manufacturing remains firmly contractionary with the eighth month of decline as measured by the HSBC PMI Index falling to 48.2 in June (a value below 50 represents a decline in activity). The data shows the steepest decline since the Global Financial Crisis commenced.
  • General weakness in the global economy saw most key commodity prices fall over the month – in particular, oil fell to US$85.0 per barrel (down 1.8% in June 2012).

Equity markets continue to be weighed down by the European Sovereign Debt crisis and a slowing Global economy. Overall global corporate earnings continue to be mixed with US technology companies and multi-nationals continuing to deliver strong results.  Equity markets remain cheap due to this high market risk. The Australian Equity market continues to be at low end of our expected 2012 trading range for the ASX 200 (4,000 to 4,800).

The next section provides an overview of market action in major asset class for the month of June 2012. 

Australian Shares

The local market rebounded slightly with a small gain in June. The S&P ASX 300 Index returning +0.5% for the month.  Investors favoured stocks with higher yield, supporting demand for telecommunications, health and property trust stocks. Resource and Energy stocks were generally down for the month.

Overseas Shares

Most global equity markets posted gains in June, as investors began to show renewed confidence in continued global growth.

The MSCI World Index returned +4.4% in US dollar terms and -0.6% in $A terms (as the $A appreciated significantly over the month). The S&P 500 index returned +4.1%, while the NASDAQ returned +3.8% local currency terms.

European markets were also up – the German DAX 30 (+2.4), the French CAC 40 (+6.8%) and the UK FTSE 100 (+5.0%).

Asian markets were mixed with Japan up (TOPIX +7.2%). Chinese markets were down (Shanghai Composite -6.2%). The Hong Kong was up (Hang Seng +5.5%).

Emerging markets declined 1.7% in $A terms.

Property

Domestic REITs as measured by the benchmark S&P/ASX 300 A-REIT Index finished the month up 4.3%. Global REITs appreciated 5.7% (as measured by the FTSE EPRA/NAREIT Developed Index) on a fully hedged basis.

Fixed Interest

Sovereign bond returns were slightly negative for the month as investors began to exit out of safe haven bonds and invest in equities.

In Australia, Commonwealth bond yields increased resulting in a -0.5% return for the month of June (as measured by the UBS Treasury Bond Index). Global bond returns were -0.1% as measured by the Citigroup World Government Bond (ex-Australia) Index.

Australian Dollar

The Australian dollar hit a 6 month low during the month and then appreciated significantly to finish the month up. The $A was up against the US dollar (+5.7%) in June.

 

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