Investment update for June 2014
World Bank lowers global GDP forecast
Although US first quarter GDP was revised sharply lower in June, investors attributed this weakness to harsh winter weather conditions and instead focused on data releases more representative of current economic conditions, which were generally strong. Data from the UK were also strong and led to Bank of England Governor, Mark Carney, hinting that UK interest rates may rise sooner than expected. In contrast, conditions in the Eurozone remain depressed and early in the month the European Central Bank announced a stimulus package that included cutting the Eurozone policy interest rate to 0.15% and cutting the deposit rate to -0.1%. As the Islamic State of Iraq and Syria (ISIS) captured several cities and towns across Northern Iraq and continued to push on toward the nation’s capital, Baghdad, the impact on oil markets has been moderate relative to past Middle Eastern crises. This is because the majority of oil supplied by Iraq is exported from the relatively more stable southern regions.
Emerging markets share price momentum continued in June with a 2.7% rise for the MSCI EM Index despite continued concerns about global growth. The escalation of conflict in Iraq led to rises in the prices of both crude oil and gold. In India it was notable that some highly-indebted companies were taking advantage of the positive investor sentiment surrounding Mr Modi’s election, and raising much needed equity. The World Bank cut its forecast for global GDP growth in 2014 to 2.8%, down from 3.2%, but said that it expected growth to pick up speed and world GDP to expand by 3.4% in 2015 and 3.5% in 2016.
The Australian equity market, as measured by the S&P/ASX 300 Accumulation Index, fell 1.4% during June. The RBA cash rate remained on hold at 2.5% and the Aussie dollar rose 1.4% to close at USD$0.9439. The best performing sectors for the month were property trusts (+3.3%), utilities (+1.1%) and financials ex-property (-1.1%). The worst performers were consumer staples (-4.5%), health care (-3.2%) and telecommunications (-2.7%). As a whole, resource stocks (-1.7%) underperformed industrial stocks (-1.4%) and small cap stocks (-1.1%) outperformed large cap stocks (-1.5%). In major company news, the retail sector delivered a number of downgrades, with Super Retail Group, the Reject Shop, Kathmandu and Pacific Brands all lowering FY14 guidance. The reductions were attributed to spending cuts in the Federal Budget, reduced consumer sentiment and warmer than expected weather in May.
The Australian Dollar (AUD) strengthened against most major developed market currencies. The AUD continues to be one of the strongest performing currencies as high domestic interest rates relative to the developed world average and low volatility in currency markets has increased the attractiveness of the carry trade.
Broad stock market performance – June 2014
|Performance (income and capital gain or loss) %|
|Australian Shares (S&P/ASX 300 Accumulation)||-1.4||0.9|
|International Shares (MSCI AC World ex-Aust) hedged||1.7||5.3|
|Unlisted property (Mercer Unlisted Property Funds Index (Pre-tax))*||0.5||1.5|
|Global Bonds (Barclays Global Aggregate (Hedged))||0.5||2.6|
|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 9 July 2014 Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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