Investment update for August 2015
Volatility driven by China’s slowdown
The month of August saw a dramatic spike in volatility and a substantial sell off in global markets. Plummeting stock prices were mainly driven by concerns over China’s economic slowdown and the timing of the next interest rate rise in the US.
Asian markets were severely impacted by the sudden devaluation of the Renminbi by the People’s Bank of China in early August. While there was much speculation as to the reasons for the devaluation, it was generally regarded as an attempt to support a weakening Chinese economy, and the export market in particular. However, while the Shanghai Composite ended the month down another 12.5%, the index remains up 44.6% from this time 12 months ago.
US equity markets were also affected by the Asian sell-off, with the S&P500 falling 6.3% over the month. The month saw a significant increase in volatility, with the US indices experiencing both their best and worst days of the year only days apart. The VIX, a volatility index which is often used to gauge investor concern, spiked in August to peak at 40.8 (well above its 200 day average of 15.5).
The price of Oil steadily declined in August before a strong rally at month’s end. The price of Crude Oil WTI eventually finished the month 2.1% higher. Raw materials prices remained under pressure largely due to concerns that slower economic growth in China will dampen demand.
The MSCI World ex-Australia Index (hedged into AUD) fell by 6.6% over the month. Across developed markets, no country finished the month in positive territory with Greece (-36.1%), Hong Kong (-12.9%) and the Netherlands (-9.5%) the weakest performing countries. Emerging markets unhedged in AUD returned -5.7%, underperforming developed markets. This was primarily driven by the substantial Asian sell off and continued underperformance in South American markets.
Locally, the S&P/ASX300 Accumulation Index posted its worst monthly performance in almost seven years (since the height of the GFC in October 2008), falling 7.7% in August. Small Caps stocks fell 4.9%, outperforming Large Caps stocks (-8.4%). Energy (-13.8%), IT (-11.5%) and Financials (-10.6%) stocks underperformed, while Utilities (-0.4%) was the best performing sector.
The Australian Dollar depreciated again in August.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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