Investment update for May 2022
While global equity markets ended the month of May broadly flat, key events such as the ongoing war in Ukraine, monetary policy tightening and COVID-19 restrictions in China continue to have an impact on overall market sentiment. China equities produced a solid positive return in the month, as COVID-19 restrictions started to ease from their most restrictive measures in Shanghai, as new case numbers fell. However, China equities have still delivered a very large negative return over the year after the tech and education tightening witnessed earlier.
In response to continued elevated inflation data in the US, the US Federal Reserve Board decided, at its May Committee meeting, to increase the official interest rate by 0.5%. (This has further increased in June). Inflation data in the Eurozone is also high and is driving the European Central Bank’s view that it will start raising rates in July 2022 and is expected to end its asset purchase program by the end of the year. In Australia, the RBA decided to start raising rates, increasing interest rate by 0.25% at its meeting in early May and is expected to raise rates further over the upcoming months, given the high inflation (June was + 0.50%).
The European Union decided to impose further sanctions on Russian oil, particularly on oil transported by sea, while Russia is also reducing the gas it supplies to Europe. This is putting further upward pressure on inflation and is also expected to have a negative impact on European economic growth. The oil price continued to rise materially in May, although other metal prices weakened somewhat over the month.
The Australian equity market produced negative performance in May, mainly driven by the negative performance of the Consumer Staples and Real Estate sectors. In May, the Australian Labor Party was elected as the new Federal Government, with Anthony Albanese sworn in as the 31st Prime Minister of Australia. Market reactions were relatively muted.
Bond markets experienced another month of negative performance, although it was a lower fall relative to the prior month. Although credit spreads continued to widen, amid the tightening of global financial conditions, the increase was moderate and corporate bonds outperformed government bonds slightly over the month.
The Australian dollar appreciated slightly against the US dollar as commentary from US Federal Reserve Board members was more mixed on the likely future rate hiking path, given increased risks to growth. The Australian dollar depreciated relative to other major currencies over the month, particularly against the Japanese Yen and the Euro.
Listed property produced significant negative performance over the month, impacted by rising interest rates and growth concerns. Australian listed real assets underperformed international listed real assets over the month.
Note: The AvSuper Growth (MySuper) option was assessed as underperforming in the 2021 YFYS Annual Performance Assessment (APA). Click here to read more.