Investment update for January 2014
Following reduced stimulus
Continued normalisation of US economic conditions led the US Federal Reserve (the Fed) to reduce the quantity of monthly bond purchases to $65B. As in December, the $10B reduction was spread evenly between sovereign bonds and mortgage-backed securities. The Fed’s announcement led to a broad decline in investor sentiment and had ramifications for global markets. Risk assets fell in the US, partly due to mixed company earnings announcements, while fears of deflation in Europe are blurring the longer term growth outlook there. Although European Central Bank President, Mario Draghi, reiterated the Bank’s commitment to further action to fight deflation, markets are not currently pricing prolonged easing. Manufacturing data from China was below expectations and led investors to revise growth expectations. A combination of reduced monetary stimulus from the Fed and a repricing of Chinese economic growth had a negative impact on emerging markets.
The MSCI World ex-Australia Index (hedged to $A) fell 3.1% over the month and the decline of the Australian Dollar against most major currencies resulted in a higher return of -1.2% (in $A) on an unhedged basis. Across developed markets the strongest performing countries in local currency terms were Denmark and Ireland, while the US, UK, Japan and Germany all produced negative absolute returns. Emerging markets underperformed developed markets as index heavyweights China, South Korea and Russia produced negative absolute returns. As reduced monetary stimulus measures led to increased capital outflows from countries most reliant on foreign funding, the equity markets of many of the countries experiencing balance of payments related troubles (namely Brazil, India, South Africa and Turkey) were further sold-off. From a global sector perspective Energy and Consumer Staples were the weakest performing sectors, while the defensive sectors of Health Care and Utilities were the only two to produce positive absolute returns.
The S&P/ASX300 Accumulation Index (-3.0%) performed broadly in line with hedged global equities as investor sentiment was driven by the same macro themes. The Financial ex-Property Trusts and Consumer Discretionary sectors were the weakest performers, while Health Care, Utilities and Property Trusts produced positive absolute returns. Small cap stocks outperformed large caps, with relative performance mostly driven by small Resources. Small cap Resources stocks (-1.1%) outperformed small cap Industrial stocks (-3.2%). The S&P/ASX 300 Property Trusts Index outperformed the broader Australian equity index and performed broadly in line with unlisted property.
The Australian Dollar depreciated (-2.5% against the $US) as the attractiveness of the Australian economy to foreign investors was reduced by a combination of decreased US monetary stimulus and worse than expected Australian unemployment data. The performance of the US Dollar against other major currencies was mixed while the Japanese Yen moved sharply higher due to its perceived “safe-haven” status. The downward pressures on the currencies of the economies experiencing balance of payments troubles intensified, particularly for economies with limited foreign currency reserves and those experiencing political turmoil.
Broad stock market performance – January 2014
|Performance (income and capital gain or loss) %|
|Australian Shares (S&P/ASX 300 Accumulation)||-3.0|
|International Shares (MSCI AC World ex-Aust) hedged||-1.2|
|Global Bonds (Barclays Global Aggregate (Hedged))||1.7|
|Cash (UBS Bank Bills)||0.2|
|Appreciation of $A against $US||-2.5|
|Check out AvSuper’s weekly returns and quarterly performance results Please note that past performance is not always a reliable indicator of future performance.|
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays *Estimated Performance at 10 February 2014
We trust you find this information useful in understanding how your AvSuper investment is performing and welcome your feedback on how we can improve the information we provide to you.