Investment update for May 2012
Fears of European implosion lead to flight from shares and into bonds
What a month! With Greek elections leading to a stalemate over their Government, the European outlook detoriated alarmingly. Recent discussions have focussed on Greece’s position within the Euro and the fallout on the Eurpopean banking system if Greece left the Euro. The Spanish banking system is also detoriating with outflows of deposits and the admission that Spain can no longer find acceptably-priced funding to roll over any loans. Economic data out of China, the USA and Europe have all showed a continued deceleration in April. With this much uncertainty in the financial world, the volatility of financial markets is not surprising.
In Australia the ASX300 had its worst month since May 2010, finishing May down 6.7%. The yield on Australian government bonds has been bought down to record lows, mirroring price moves in German Bunds and US Treasuries, as offshore central banks and sovereign wealth funds continue to bid up AAA rated paper. The AUD fell as investors switch back to the USD, amidst expectations for the RBA to ease rates further in June. Commodity prices retreated across the board, pulling the Aussie Materials sector down 11% for the month. The financial sector fell by 7.3% as investors priced in a lower growth environment, the potential for margin squeeze and any broadly unforeseen changes in economic conditions. Consumer Durables were hit by the consumer buying strike and fell almost 15%. The only two sectors to show a positive return were Media, Food and Telcos. Small Cap stocks also underperformed the broader market declining by 10.2%.
Global equities ended May sharply lower with the MSCI world index shedding a little over 6.5% in USD terms, as heightened concerns about the euro zone sovereign debt crisis jolted confidence and deflated expectations for global growth. Unhedged investors benefitted from a sharp 6.8% decline in the AUD to be down only 1.7%. Not surprisingly, European markets once again reported relatively sharp declines, lead by Greece (down 25%), Portugal (down 12%) and Austria (down 12.3%), with the latter suffering due to the large exposure of Austrian banks to the European periphery. There were no positive returns amongst developed markets. Emerging markets were also weak falling by 4.7%. Once again the defensive sectors such as Consumer Staples, Telcos and Healthcare were well supported, while Materials and Energy led the way down.
The two asset classes that did perform well were property, especially unlisted property, and bonds. Bond yields fell to record lows and this resulted in a 3.1% return for the UBS Composite Bond Index, but only a 1.6% return for global bonds.
The outlook for financial markets largely depends on the political outcomes in Europe.
Broad stock market performance – May 2012
|Performance (income and capital gain or loss) %|
|Australian Shares (S&P/ASX 300 Accumulation)||-6.7|
|International Shares (MSCI AC World ex-Aust) hedged||-1.7|
|Global Bonds (Barclays Global Aggregate (Hedged))||1.5|
|Cash (UBS Bank Bills)||0.4|
|Appreciation of $A against $US||-6.8|
|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
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