Investment Market Update
The volatility in global equity markets has increased significantly in the period from May to July 2013. The volatility is mainly due to concerns that the US Quantitative Easing (i.e. buying government Bonds) policy will be tapered off towards the end of this year, that China is showing signs of slowing down and that European sovereign debt and unemployment issues continue to cause concern. Some key themes affecting the market are as follows:
Australia
- The RBA (Reserve Bank of Australia) kept the official cash rate at 2.75% in July mainly because the $A has been depreciating and this will provide its own stimulus to economic activity.
- Australian unemployment increased to 5.7% (up from 5.6% in May 2013). This rate is expected to continue to increase slightly over 2013.
- Mining sector activity is slowing sharply due to the cancellation and deferment of a range of new projects and a decline in most key commodity prices. This is currently creating a significant drag on Australian economic growth. Mining and mining services sector companies are already starting to downgrade profit forecasts.
- There are increasing concerns of a moderation in Australian economic activity and in this context it is expected that the RBA official cash rate may fall further in 2013 with the Australian dollar continuing to depreciate
Europe
- The European Central Bank has confirmed that the currently aggressive loose monetary policy of low interest rates and sovereign bonds purchase will continue for some time. This has continued to buoy European share markets.
- The European unemployment rate remains high and continues to trend up (currently 12.2%; up 0.1% for the month of April 2013). Economic growth has been -1.1% for the year to March 2013. Retail sales growth has been -1.1% for the year to March 2013.
United States
- US economic growth for the quarter ending 31 March 2013 is was 2.2%.
- June 2013 profit reporting has commenced and has generally been strong. US companies are currently continuing to earn historically high profit margins.
- The US jobless rate edged down to 7.6% in April 2013.
- The US housing market, as measured by the National Association of Realtors, rose at an annualised rate of 9.7% to April 2013.
- US consumer spending is up 2.8% in the year to April 2013.
-
US 10 year treasury yields have been at historically low levels throughout the last 12 months. However this yield has increased significantly since May 2013, up from 1.6% at the start of May, to 2.1% at the end of June. This rise is due to the expectation that the US Federal Reserve may start to reduce the buying of US Government Bonds (i.e. Quantitative Easing).
10 Year US Treasury Yields
Source: Bloomberg
China/Japan
- China’s economy is slowing and the rate of growth in the next 12 months is expected to be between 6% and 7%. Chinese manufacturing activity slowed significantly over the June quarter which may have an impact on demand for commodities.
- The Japanese are using a combination of Quantitative Easing and additional government spending to re-inflate their economy. These policy measures are working and we have seen a significant devaluation of the Japanese Yen and an improvement in sales and profitability for multi-national Japanese companies.
Investment Market Performance
Selected Market Indicators Commentary for the Month ending 31 December 2012
Asset Class Returns
Source: Thompson Financial Datastream; MSCI data provided ‘as is’. Prepared by Harvest
Australian Shares
The Australian stock market fell for the second month in a row with the S&P ASX 300 Accumulation Index down -2.4% for the month of June as investors continued to express concern over global events including a spike in Chinese interbank interest rates and suggestions that the US would taper its Quantitative Easing program later this year.
The Healthcare Sector (+1.3%), the Telecommunication Sector (+1.0%) and the Financials Sector (+0.4%) were the only sectors to record a positive return for the month, while the Materials Sector (-10.3%) was the weakest performing sector in June.
Overseas Shares
Global markets were generally down in June. The US S&P 500 Index was down -1.3% as it also felt the consequences of reduced investor confidence stemming from the likelihood that the US will gradually scale back its Quantitative Easing program later in the year.
European markets followed suit, also recording generally negative returns for the month. The UK FTSE 100 was the weakest performer among the major European markets, returning -5.3%. The French CAC 40 (-4.9%) and the German Dax 30 (-4.7%) were also down in June. These returns could have been worse had ECB President Draghi not reassured the market that its aggressive loose monetary policy would remain in place for some time into the future.
Most Asian markets finished down, with the Chinese Shanghai Composite Index being the weakest performer, plunging -14.0% for the month.
Property
Real Estate Investment Trusts (REITs) suffered losses for the month of June with domestic REITs falling -1.0% and global REITs falling -2.4%.
Fixed Interest (Bonds)
Global sovereign bond yields were up across the board in June with 10 year bond yields up in the US (+32 bps to 2.48%), the UK (+44 bps to 2.44%) and Germany (+23 bps to 1.69%) experiencing large gains.
Australian Sovereign bond yields were weaker over the month with the UBS Treasury Bond Index returning -3.9% in June.
Australian Dollar
The Australian dollar depreciated against all major currencies in June. The A$ fell -4.5% against the US$, finishing June at US$0.915. The A$ also depreciated against the Yen (-6.1%), the Euro (-4.8%), and the Pound Sterling (-4.6%).
Leave A Comment
You must be logged in to post a comment.