Investment update for October 2014
The Fed announces end to QE program
October started where September left off – with volatility fuelled by continued slow global growth (particularly in the Eurozone), falling oil prices, speculation about the end of the quantitative easing (QE) program in the US, and the continuation of geopolitical concerns (Syria, Iraq, Ukraine and spread of the Ebola virus). The results of the European Central Bank’s Asset Quality Review — largely viewed positively by the markets —showed 25 out of 130 banks tested failed the assessment with a total capital shortfall of €25 billion. Strong US employment growth and continued conviction that the US recovery may be self-sustaining led the Fed to announce that it will finally end its QE program. The US corporate reporting season was also very strong with the earnings of 75% of reporting companies exceeding analysts’ expectations. In contrast to the US Fed, the Bank of Japan announced an extension of its qualitative and quantitative easing (QQE) program after a slowing of inflation.
The MSCI World ex-Australia Index (hedged into AUD) increased 1.3% over the month. The Australian Dollar appreciated against major developed world currencies and this resulted in a weaker return of 0.1% (in AUD) on an unhedged basis. Across developed markets, the strongest performing countries in local currency terms were Hong Kong, Japan and the US. The weakest performing regions were UK and Europe in the context of European economic expansion continuing to stall and inflation slowing to the lowest rate in almost five years. Emerging markets (unhedged in AUD) lagged developed markets. The markets of Brazil, Korea, Indonesia and Mexico all lagged developed markets in local currency terms. From a sector perspective, Utilities, Consumer Staples and Financials led the way while Materials and Energy struggled on the back of continuing weak oil prices and mixed performance from commodities.
The S&P/ASX300 Index rose 4.3% over the month, driven by the performance of the big four banks which rallied in the lead up to reporting season following a torrid prior month of trading due to concerns in relation to the Murray Inquiry. Large Caps led the way while the Small Caps recorded a negative month, dragged down by Small Resources that suffered due to market concerns in relation to Chinese economic growth and the consequent impact on oil and iron ore prices. Consequently, All Industrials outperformed All Resources over the month. From a sector perspective, Energy and Materials were in negative territory while Health Care, Financials, Telecommunications and Property Trusts led the way.
The USD dollar continued to rally against most currencies in our universe, especially the yen (down 2.4%), after the Bank of Japan introduced massive new stimulus. The euro (down 0.9%) also fell on hints of broader quantitative easing, such as the Reuters exclusive announcement that the ECB was examining the efficacy of large-scale corporate bond purchases. Higher-yielding currencies rebounded from last month’s strong-dollar environment and received a boost throughout the month from G3 easing action or related rhetoric.
Broad stock market performance – October 2014
|Performance (income and capital gain or loss) %|
|Australian Shares (S&P/ASX 300 Accumulation)||4.3||-0.7|
|International Shares (MSCI AC World ex-Aust) hedged||1.3||3.6|
|Unlisted property (Mercer Unlisted Property Funds Index (Pre-tax))*||0.5||2.1|
|Global Bonds (Barclays Global Aggregate (Hedged))||0.9||2.4|
|Cash (UBS Bank Bills)||0.2||0.7|
|Check out AvSuper’s weekly returns and quarterly performance results Please note that past performance is not always a reliable indicator of future performance.|
*Estimate as at 10 November 2014 Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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