Market Update
Global equity markets continued to perform strongly over February and March boosted by resolution of the latest Greek sovereign debt deal and data indicating that the US economic recovery is gaining some momentum. However, balancing this news has been the slowing of the Chinese economy and a slight reduction in commodity prices which is adversely affecting share prices of the Australian resource companies. Some key developments influencing markets at the moment include:
- Australian Reserve Bank has held official interest rates steady at 4.25% in February, March and April based on Australian growth and inflation expected to be at moderate levels.
- Australian unemployment rate remained at 5.2% in February.
- Global rating agencies downgraded the credit ratings of CBA, Westpac and NAB from AA to AA- due to heavier reliance on off-shore funding to fund their lending books.
- Greece secured its second bailout package of Euro $130M and the write down of around Euro $100M of private sector debt.
- Chinese authorities have lowered the required bank reserve by 0.50% to become 20.5%, in an effort to stabilise growth. The HSBC PMI index (which measures the level of manufacturing activity) moved down to 49.7 (a level of 50 generally reflects no growth).
- US economic growth data in February showed economic growth at a rate of 3% year on year. Other positive indicators included improved consumer and business confidence, central bank keeping rates low until 2014, US wages growth and US jobless claims falling to a 4 year low.
- Oil price up to US$107.1 per barrel (up 8.8% for February) and Gold US$1,724.70 (up 0.2% for February)
- Some growing concern that Spain will soon need to apply for a sovereign debt rescue package
The mood in equity markets has improved in the March 2012 quarter. However European debt issues and a slowing Chinese economy are likely to result in low to moderate global economic growth in 2012. Overall global corporate earnings growth will be modest. Equity markets remain cheap taking into account the expected economic recovery. Equity markets however continue to remain vulnerable to poor news and we expect the ASX 200 to continue to trade in the range 4,000 to 4,800 for the remainder of 2012.
Global Share Market Recovery
Equity markets started to fall in the December quarter 2007 and the effects of the Global Financial Crisis has continued to impact equity markets for the last 4 ½ years. The graphs below provide the following information:
- Many Global equity markets (especially the US) have rebounded (in share price terms) more than Australian market in local currency terms. However, adjusting for the movement in the $A the local market has generally outperformed global markets due to a strong rise in the $A.
- The Australian market underperformance is largely due to a very high $A which is making tourism and many other Australian industry exports more expensive to overseas buyers, relatively high interest rates affecting the cost of borrowing for companies and individuals, modest growth in consumer spending, consumers increasing their savings rates and slower corporate earnings growth than the US market for example.
- The Australian market does provide significantly higher income returns than other markets so on a total return basis the underperformance has been more modest.
The next section of this newsletter provides an overview of market action in major asset class for the month of February 2012.
Australian Shares
The local market had a positive month – the S&P/ASX 300 Index returning +2.1%. Large Cap stocks (+1.3%) unperformed their Mid Cap (+4.0%) and Small Cap (+6.5%) counterparts. At the sector level, the strongest sectors were – Consumer discretionary (+6.7%), Energy (+6.2%) and Industrials (+6.8%). Underlying the performance of these sectors, were strong returns from Fortescue Metals (+10.4%), Orica (+10.2%), and Woodside Petroleum (+9.1%).
Overseas Shares
In local currency terms, The MSCI World ex Australia Index returned +4.9%.
Emerging markets returned +4.3% for the month. In the US the S&P 500 returned +4.3%, the Dow Jones was up 2.9% and the NASDAQ up 5.4%.
In Europe the FTSE 100 (UK) returned +3.9%, the DAX 30 (Germany) +6.2% and the CAC 40 (France) + 4.7%. In Asia, the Hong Kong Hang Seng was up 6.3%, the Chinese Shanghai Composite Index up 5.9% and Japanese TOPIX returned +10.7%.
Property
Domestic REITs as measured by the benchmark S&P/ASX 300 A-REIT Index finished the month up 2.3%. Global REITs appreciated 3.7% (as measured by the FTSE EPRA/NAREIT Developed Index) on a fully hedged basis.
Fixed Interest
The local UBS Australian Composite Bond Index returned -0.2%. In terms of overseas bonds, the Citigroup World Government Bond (ex-Australian) index gained 0.5% during the month and similarly, the Barclays Capital Global Aggregate Bond Index appreciated 0.7%, both on a fully hedged basis.
Australian Dollar
The Australian dollar appreciated against all major currencies (except the Euro) returning +0.4% against the Pound Sterling and -0.5% versus the Euro, +1.7% against the US dollar, and +7.9% against the Yen. On a trade-weighted basis, the Australian dollar appreciated 1.7% during February.
GENERAL ADVICE WARNING © 2012 Harvest Financial Group Pty Ltd. This Newsletter has been prepared for clients of Harvest. This document contains confidential and proprietary information of Harvest Financial Group (‘Harvest’), and is intended for the exclusive use of the recipient to whom it is addressed. The document, and any opinions on investment products it contains, may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity without Harvest’s prior written permission. Information on investment management firms contained herein has been obtained from the firms themselves and other sources. While this information is believed to be reliable, no representations or warranties are made as to the accuracy of the information presented, and no responsibility or liability, including for consequential or incidental damages, can be accepted for any error, omission or inaccuracy in this report or related materials. Opinions on investment products contained herein are not intended to convey any guarantees as to the future investment performance of these products. In addition, past performance cannot be relied on as a guide to future performance. This information has been sourced from Harvest’s independent research house Mercer Investment Consulting Research and other sources.
Leave A Comment
You must be logged in to post a comment.