Investment update for July 2013
Markets rally on positive data and policy announcements
After spooking markets in June with a potential tapering of US asset purchasing program, US Federal Research Chairman Bernanke eased market concerns by stating there was no set schedule for ending the asset purchasing program. The US Federal Open Market Committee minutes support a continuation of quantitative easing and the low interest target of 0.25% for the foreseeable future. The US Government budget surplus reached its highest level in three years.
The European Central Bank, the Bank of England and the Bank of Japan also maintained their supportive policies. Notably, Eurozone economic data showed positive signs, with some economic measures making the best improvement in two years. In response to concerns about the robustness of their economic growth, Chinese authorities announced a range of stimulus measures and a stated desire to maintain economic growth above 7%. In summary, markets responded positively to central bank announcements indicating a continuation of stimulatory measures.
The MSCI World ex-Australia Index (hedged in $A) was up 5.1% over the month. With the $A weakening against all major currencies, unhedged returns (in $A) achieved +7.5% over the month. Apart from Japan (-0.4%), all major developed market regions posted positive returns for July. The main benefactor of the market rally was Europe, largely due to more positive economic data for the region. France, Greece, Italy, Spain and the UK were the standout performing markets. Emerging markets (unhedged in $A) achieved +3.1% over the month, following a persistent recent theme of underperforming developed markets by a considerable margin, with most major emerging market regions posting weaker relative returns.
The S&P/ASX300 Accumulation Index performed broadly in line with hedged global equities, returning 5.3% over the month. Given Chinese efforts to stimulate economic activity, it was not surprising that Resources were the main driver of overall performance of the Index. In particular, Small and Mid Cap Resources performed well and managed to clawback some of their recent poor performance (but are still some way behind over longer timeframes). Large caps continued their strong run and outperformed the broader market. From a sector perspective, the cyclical sectors of Energy, Materials and Consumer discretionary led the way along with the Financials sector which continued its recent strong run.
Broad stock market performance – July 2013
(income and capital gain or loss) %
|Australian Shares (S&P/ASX 300 Accumulation)||5.3|
|International Shares (MSCI AC World ex-Aust)||7.5|
|Global Bonds (Barclays Global Aggregate (Hedged))||0.6|
|Cash (UBS Bank Bills)||0.3|
|Appreciation of $A against $US||-2.0|
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*Estimate as at 8 August 2013
Over the month, the yields on 10-year Government bonds for Australia, the Euro Area, Japan and the UK all tightened. The yield on 10-year US Government bonds widened over the month as mutual fund investors moved from bonds to equities. In this context, global Government fixed interest investments had a solid month in aggregate.
Recent events highlight that the market recovery is prone to rapid changes in sentiment driven by government policy and stimulus announcements.
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.