Investment update for October 2013
Positive sentiment still on edge
Following a 17 day shutdown, the US government “re-opened” mid-month. The Republican controlled House of Representatives and Democrat led Senate agreed to pass yet another continuing resolution which sees the government funded through to mid-January 2014. Steady developed world growth was still below the levels required to warrant reduced stimulus, but it had a positive effect on both stocks and bonds. Overall conditions in the Eurozone remain depressed, with many indicators pointing toward a need for further easing of monetary conditions in all countries, except Germany. In China, data releases exceeded expectations, but ongoing concerns about financial sector stability moderated sentiment.
The MSCI World ex-Australia Index (hedged to $A) rose 4.1% over the month, while the appreciation of the $A against most major currencies resulted in a lower return of 2.6% (in $A) on an unhedged basis. Across developed markets, the strongest performers in local currency terms were the peripheral European countries of Italy, Greece and Spain, as stocks re-rated based on improved sentiment. The weakest returns came from Japan, Portugal and Sweden. Emerging markets (unhedged in $A) also performed strongly, returning 3.6%. Most major emerging market countries posted returns which were broadly in line with the benchmark.
The S&P/ASX300 Accumulation Index (+3.9%) marginally underperformed hedged global equities, as the Australian market moved in lockstep with the MSCI World ex-Australia Index. The RBA left the Australian Cash Rate unchanged at 2.5% in October. The bank commented that although the foundation is in place for a recovery in the non-mining, recent strong confidence readings must be sustained before businesses support a pick-up in non-mining economic activity.
Broad stock market performance – October 2013
(income and capital gain or loss) %
|Australian Shares (S&P/ASX 300 Accumulation)||3.9|
|International Shares (MSCI AC World ex-Aust)||2.6|
|Global Bonds (Barclays Global Aggregate (Hedged))||1.1|
|Cash (UBS Bank Bills)||0.2|
|Appreciation of $A against $US||1.3|
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The $US was volatile against most major currencies. This saw the $A initially rise 4% against the $US before giving away much of the gains to finish the month up 1.3%. The $A ended the month broadly flat against the Euro as the latter appreciated late in the month due to an improved growth outlook, while against the Yen the $A finished the month ahead despite a period of strong demand for the Yen as it temporarily stepped in to play the role of the world’s “safe haven” currency due to political issues in the US.
October was another month of relative calm for the emerging market economies experiencing balance of payments issues. Policy makers have intervened to limit (and in some cases prevent) capital outflows, however, structural issues still remain and it is yet to be seen whether these economies can re-position themselves on to a sustainable path that isn’t funded by large current account deficits.
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