Investment update for April 2015

RBA holds steady in volatile month

Global context

Despite many first quarter earnings missing analysts’ expectations, US markets continued to rally. The broader US economy was also weaker, with growth of 0.2% over the first quarter. A US Federal Reserve rate hike is now not expected before September.

European equities fell away significantly in the last days of the month, after growing strongly in April. European corporate earnings were solid, and UK markets continue to move contrary to the rest of Europe, with the MSCI United Kingdom ending the month 3.3% higher.

In Asia, the Nikkei finished April 1.6% higher, Chinese Markets returned a remarkable 18.5%, and the Chinese government attempted to fuel lending by cutting required reserve ratios for financial institutions. The Hong Kong market also grew strongly as Chinese investors were allowed access to the stock exchange.

International markets

The MSCI World ex-Australia Index (hedged into AUD) rose by 1.4% over the month. Across developed markets, the strongest performing markets in local currency terms were Hong Kong (9.1%) and Portugal (6.1%), while Finland (-5.3%) and Germany (-4.3%) were the weakest. Emerging markets significantly outperformed developed markets, which was largely due to the strength of Chinese markets. Energy was the standout global sector (6.2%), while Health Care (-3.2%) and Consumer Discretionary (-1.9%) were the worst performing. 

Australian markets

April was a volatile month for the Australian market, with the S&P ASX300 index finishing 1.6% lower. There was a rally in the price for iron ore which contributed to an appreciation of the Australian Dollar which ended at US80c. Against this backdrop, the Reserve Bank of Australia decided to maintain interest rates at 2.25%.

Small Caps stocks returned a positive 1.7% and outperformed Large Caps stocks (-2.0%). Financials stocks struggled and fell 4.1% while Energy (8.5%) and Utilities (2.2%) were the strongest performing sectors. Also, the ASX Small Ords Resources index returned 11.3% in April on the back of increasing commodities prices.

Fixed interest

Over the month, the yields on 10-year Australian, US, UK, Euro and NZ Government bonds increased while Japanese bonds tightened. Long duration bonds underperformed, with inflation linked securities also underperforming the wider market. Australian bonds and global investment grade credit both outperformed global bonds (hedged into AUD).

Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays

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