Investment update for August 2011

Bad macro news continues

A key event in August was Standard & Poor lowering US sovereign debt rating from AAA to AA+, while Moody’s placed the US on ‘negative watch’. Added to lower than expected June quarter US GDP growth figures, this led to fears of a ‘double dip’ US recession which caused stock markets to fall. Markets did recover some ground later in the month, capping off a very volatile month for equity markets. The $A and commodity prices also fell in response to concerns of lower global growth.

Australian equities finished the month down. In a period where bearish sentiment and bad macroeconomic news drove markets, defensive stocks excelled. Consumer Staples, Telecomms and Utilities were the only positive performing sectors, while Energy, Materials and Industrials performed poorly due to concerns about a global slowdown and consequent impact on commodity prices. Small companies underperformed large caps due to the weak performance of small resources stocks. Unlisted Property posted a positive return for the month with returns largely reflecting income. Listed Property Trusts started the month poorly, but finished strongly to reach positive territory on the back of positive annual results reported from the sector.

The combination of poor macroeconomic news and equity market volatility triggered a continued tightening of government bond yields as investors sought ‘safe havens’ in government bonds. Global equities were down on a hedged basis, and with the $A slightly weakening against the $US, unhedged returns fared slightly better for the month. The major regions of Asia ex-Japan, North America, Europe and Emerging Markets all posted negative returns on an unhedged basis (in $A), with Europe and Asia faring the worst. None of the MSCI Developed Market Country Indices reached positive figures in local currency terms – Australia, New Zealand and Canada performed the best, Greece, Germany and Austria faring worst.

Globally, all market sectors except Consumer Staples posted a positive return for the month. Energy, Industrials, and Financials fared the worst on the back of concerns about a global slowdown and European banks’ exposure to peripheral European sovereign debt. Consumer Staples, Utilities, and Telecoms fared best in an environment where defensive stocks generally outperformed cyclicals.

Short-term interest rates in developed economies remain low, and bond yields continued to tighten as investors use the sector as a defensive strategy. Since 30 June 2011, the 10 year yields of Australian, Euro area, UK and US government bonds have declined. Australian 10 year Government bonds and unhedged global government bonds were the highest performers for the month. Credit has been surprisingly resilient despite underperforming relative to government bonds.

Looking ahead

Although corporate balance sheets are strong, bad macroeconomics and poor sentiments are keeping global markets volatile, and investors should expect volatile markets for some time to come.

Broad stock market performance – August 2011

Performance (income and capital gain or loss) %
Australian Shares (S&P/ASX 300 Accumulation) -2.0
International Shares (MSCI AC World ex-Aust) hedged -5.0
Global Bonds (Barclays Global Aggregate (Hedged)) 1.7
Cash (UBS Bank Bills) 0.4
Unlisted property 0.5
Appreciation of $A against $US -2.5
Check out AvSuper’s weekly returns and quarterly performance results Please note that past performance is not always a reliable indicator of future performance.

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

We trust you find this information useful in understanding how your AvSuper investment is performing and welcome your feedback on how we can improve the information we provide to you.

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