Investment update for July 2016
Positive data encourages positive momentum
Risk-on sentiment returned to global markets and volatility in financial markets decreased in July, driven by expectation of further stimulus from central banks globally.
The S&P 500 rose to end the month 3.6% higher. Numerous positive economic releases spurred this increase including strong nonfarm payrolls and a positive jobs release. Stronger than expected results in corporate earnings also encouraged the upward momentum in the US.
In Australia, the market gained 6.4% in July, with global data releases (including the US nonfarm payrolls and Chinese GDP growth, production and retail sales) playing a role. Concerns subsided about the inconclusive Federal election and impact of the UK’s decision to leave the European Union. Standard & Poor’s revised its outlook for Australia’s AAA sovereign debt rating from stable to negative, but this signal also failed to make a lasting impact on equity markets.
The MSCI World ex-Australia Index (hedged into AUD) gained 4.1% over the month. European markets bounced back from the damage caused to equity markets by the announcement of the Brexit. France, Germany and the UK all posted positive returns. European markets gained momentum around corporate reporting that was better than expected, and on expectations that the Bank of England and European Central Bank would cut rates.
Asian markets were also positive as the Nikkei Index rose 6.4%, while the Shanghai Composite Index rose 1.7% over the month. The Chinese equity market was encouraged by economic data that included a 6.7% year-on-year growth in GDP, improving industrial production and retail sales. The Nikkei Index bounced from poor performance in June driven by speculation around Japan’s easing measures, particularly after Prime Minister Abe proposed a 28 trillion Yen fiscal stimulus package.
The S&P/ASX300 Accumulation Index rose 6.4% in July. Small Cap stocks rose 8.6% for the month, outperforming the broader market and Large Caps stocks (5.8%). Consumer Discretionary (8.9%), Consumer Staples (8.6%) and Materials (7.8%) stocks outperformed, while Energy (0.2%) and IT (3.9%) were the worst performing sectors.
The Australian dollar appreciated in July against the USD (+2.1%). This resulted in returns to International equities of 2.0% on an unhedged basis.
The Australian dollar was trading at US$0.7522 as at 31 July 2016.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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