Investment update for September 2015
US picking up and China slowing down
Continued unrest was felt in global markets throughout September. Concern about China’s economic slowdown is still a dominant factor and commodity prices have continued to decline. The timing of the next interest rate rise in the US was also a talking point following the US Federal Reserve keeping interest rates steady at its September meeting.
China’s economy is being closely watched by investors across the world. Exports, a primary source of growth in the Chinese economy historically, have halted or slipped marginally backwards. However, the retail economy has emerged as a new source of growth and has proven more resilient. The stability in consumption has created investment growth in related downstream manufacturing sectors. The future of the Chinese economy will hinge on policy reforms that may be needed to restore market confidence in the economy, and the equity and FX markets.
US economic data continues to show positive signs despite slow global growth elsewhere. Recent data have revealed solid payroll gains and construction activity, while positive consumer spending produced better than expected increases in August retail sales.
The MSCI World ex-Australia Index (hedged into AUD) fell by 3.4% over the month. The Australian Dollar depreciated again in September, which resulted in an unhedged return of -2.7% (in AUD). Across developed markets, only Greece (0.3%) finished the month in positive territory while Japan (-7.8%) and the Spain (-7.2%) were the weakest performing countries in local currency. Emerging markets returned -2.0% (unhedged in AUD), and outperformed developed markets.
Locally, the S&P/ASX300 Accumulation Index posted another poor monthly performance, compounding on a very bad August month, falling a further 2.9%. Concerns about China and the slowing of domestic growth weighed heavily on the market. Small Caps stocks fell 0.5%, outperforming the broader market, while Large Caps stocks (-3.2%) underperformed. Energy (-12.0%), Materials (-11.5%) and Financials (-3.3%) stocks also underperformed, while IT (6.1%) was the best performing sector.
Despite a rate-hike delay from the US Federal Reserve in mid-September, the US dollar rallied against commodity currencies like the Australian dollar (down 0.9% for the month sitting at $0.73 AUD/USD), and other emerging market countries such as Mexican peso (down 1.0%), Canadian dollar (down 1.4%), Malaysian ringgit (down 4.6%), Norwegian krone (down 2.7%), and South African rand (down 4.3%).
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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