Investment update for June 2013
Markets wobble on concerns of tapering of stimulus by US Fed
It was a volatile month for markets. US Federal Reserve Chairman Ben Bernanke gave the dominant headline for global markets, commenting that the US Federal Reserve would consider scaling back its quantitative easing program if the US economy continued its recovery. This caused a reversal of sentiment and correction across a wide range of asset classes, notably in equities and bonds. In particular, the 10-year rates for US and UK Government Bonds spiked on concerns that low central bank rates would not persist indefinitely.
Markets continue to hold concerns about the robustness of Chinese economic growth, the expansion of the Chinese shadow banking system, poorer lending standards and the subsequent spike in Chinese interbank lending rates. The emerging consensus is that Chinese growth will be lower than in the past. As a consequence, commodity prices declined over the month as did the Australian dollar ($A).
The MSCI World ex-Australia Index (hedged in $A) fell 2.4% over the month. With the $A significantly weakening against all major currencies, unhedged returns (in $A) achieved +2.4% over the month. With the exception of Japan (0.1%), all developed market regions posted negative returns for June. Europe bore the brunt of the market sell off with France (-5%), Germany (-4.4%), Portugal (-5.4%), Spain (-7.5%) and Italy (-11.2%) the major laggards. Emerging markets (unhedged in $A) fell 1.9%, outperforming hedged developed markets in $A. Not surprisingly, those countries with recent social instability suffered the worst with Brazil (-9.4%), Egypt (-12.5%) and Turkey (-11.2%) all struggling.
The S&P/ASX300 Accumulation Index performed in line with hedged global equities, returning -2.4% over the month. Given concerns in relation to China and the fall in commodity prices, it was not surprising that Resources was the main detractor from the overall performance of the Index. Small and Mid Cap Resources struggled the most. Large caps also lost ground (-1.5%) but outperformed the broader market. From a sector perspective, Energy (-5.9%), Materials (-10.3%), Industrials (-2.8%) and IT (-7.0%) performed the worst. The best performing sectors Consumer Staples, Health Care, Financials and Telecoms.
Broad stock market performance – June 2013
(income and capital gain or loss) %
|Australian Shares (S&P/ASX 300 Accumulation)||-2.4|
|International Shares (MSCI AC World ex-Aust)||2.4|
|Global Bonds (Barclays Global Aggregate (Hedged))||-1.2|
|Cash (UBS Bank Bills)||0.2|
|Appreciation of $A against $US||-4.5|
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*Estimate as at 10 July 2013
A difficult month
Over the month, the yields on 10-year Government bonds for Australia, the Euro Area, UK and the US all jumped considerably. In particular, US 10-year Government bond yields moved from 2.1% to 2.5% and UK 10-year Government bond yields moved from 2.0% to 2.4%. In this context, long duration global fixed interest rate investments incurred losses. Global credit (as measured by the Barclays Capital Global Credit Index, hedged in $A terms) also lost ground over the month, as did Australian Inflation Linked Bonds.
In summary, it was a difficult month for fixed interest investments overall following on from a difficult prior month. Recent events highlight that the market recovery is still vulnerable to shocks and rapid changes in sentiment.
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.