Investment Newsletter – February 2013

 

United States

• US economic growth initial estimates for the quarter ending 31 December 2012 disappointed markets, declining by -0.1% pa.  This result was largely due to a reduction in defence spending, slow growth in company inventories and large disruptions from Hurricane Sandy.
• The US jobless rate edged up to 7.9% in January.
• US house prices continued their recent rise being up 0.6% in November 2012.
• The US senate approved suspending the federal borrowing limit until May 2013.  However at this stage some automatic spending cuts are due to take effect from March 2013.  This is causing some uncertainty in markets.

Europe

• The Italian election this week has failed to provide a result.  The market response was a panic with Italian and Spanish bond yields up sharply and European equity markets down sharply.
• The Eurozone unemployment rate remained high at 11.7% in December 2012.  The manufacturing sector improved to an 11 month high with Eurozone PMI rising 1.7 points to 47.9 in December 2012 (a figure less than 50 still signals contraction).

China/Japan

• China’s manufacturing sector expanded in January 2013.  The HSBC PMI (Purchasing Managers Index) was up to 51.9 in January 2013 (more than 50 signals expansion).
• The Chinese inflation rate hit a seven month high of 2.5% in the quarter ending 31 December 2012, bringing the annual rate to 7.9%.
• The Bank of Japan (BOJ) confirmed an inflation target of 2% pa.  The Japanese are using a combination of quantitative easing (i.e. buying Government Bonds) and additional government spending to reinflate the economy.  The Japanese share market has responded strongly to these initiatives.

[box] The Australian Share market has rallied strongly in January and February 2013 with a slight pull back in the last week. The recent rise reflects an increase confidence that the Global economy is recovering. We expect the Australian Equity market (as measured by the ASX 200 index) to now trade in the range of 4,700 to 5,200 over the next 6 months.[/box]

Investment Market Performance

 

Selected Market Indicators Commentary for the Month ending 31 December 2012

Asset Class Returns

 

Australian Shares

The S&P ASX 300 Accumulation Index finished the month of January up +5.0% reflecting a positive month for Australian Shares. All market sectors finished higher with IT (+14.7%), Consumer Discretionary (+8.5) and Energy (+6.0%) among the strongest performing.

Overseas Shares

International shares also had a strong month with the MSCI World ex Australia Index rising +4.6% in January. Positive global economic news is continuing to drive an increase in overall investor optimism which saw positive gains evenly spread among all global sectors (Healthcare +6.7%, Financials +5.8%, Energy +5.7% and Consumer Discretionary +5.2% to name a few).

Major Global Markets were also up in January. The US S&P500 posted its strongest monthly gain since October 2011 at +5.2% on the back of positive corporate earnings figures.

European Markets were also generally up with the UK FTSE 100 (+6.5%), the French CAC 40 (+2.5%) and the German Dax 30 (+2.1%) being the strongest performing markets.

Chinese recovery and central bank action in Japan saw strong gains from China’s Shanghai Composite Index (+5.1%) and Japan’s TOPIX (+9.4%) in January. Most other Asian markets including the Indian BSE 500 (+2.9%) and the Hong Kong Hang Seng Index (+1.5%) also made positive gains for the month.

Property

Real Estate Investment Trusts (REITs) performed strongly with Domestic REITs up +4.4% and Global REITs up +3.9%.

Fixed Interest

Bond prices fell over the month due to increased bond yields. 10 year bond yields rose across the globe with US (+24 bps to 1.99%), German (+44 bps to 1.62%) and Australian (+18 bps to 3.45%) 10 year bonds having the strongest yield increases.

Australian Sovereign bond prices fell over the month with further monetary easing measures expected from the RBA

Australian Dollar

The Australian dollar rose against all major currencies except the Euro (losing -2.4%) in January. The $A recovered its loss against the US$ in January finishing the month up +0.5% translating to a value of US$1.04. The $A performed particularly strongly, appreciating +6.0% against the Japanese Yen and +3.0% against the Pound Sterling (+3.0%).

[box] GENERAL ADVICE WARNING © 2013 Harvest Employee Benefits. This Newsletter has been prepared for Harvest’s clients. The information contained herein is current and up to date at the time it was prepared. Harvest Employee Benefits Pty Ltd, ABN 74 107 226 693 is a Corporate Authorised Representative and Mario Isaias, Noel Hucker and Inbam Devadason are Authorised Representatives of Harvest Financial Group Pty Ltd, ABN 80 111 998 068 AFS Licence No 284909. Harvest reserves the right to correct any errors or omissions. Any advice contained herein has been prepared without taking into account any individual persons objectives, financial situation or needs. As such, before acting on any information contained herein, a person should consider whether the information is appropriate for that person, having regard to their objectives, financial situation and needs. The relevant Product Disclosure Statement should be obtained and read before making any decision regarding information contained in this Newsletter.[/box]