Investment update for August 2012

Third straight monthly gain for markets 

Following the trend of positive results over June and July, markets rallied during August. European markets were buoyed by the European Central Bank (ECB) assertions that it would do ‘whatever it takes’ to preserve the Eurozone by intervening in bond markets. The ECB plan involves buying sovereign debt with a term of up to three years, subject to countries agreeing to conditions such as budget cuts and economic reforms. Markets also gained confidence that the US Federal Reserve would provide additional stimulus. Meanwhile, Chinese economic data continues to disappoint. Against the backdrop of the once-a-decade political leadership transition in October, there are concerns that China could miss its economic growth targets.

The S&P/ASX300 Index finished August up 2.1%, driven by small cap and large cap stocks, while mid caps lagged. Market performance was driven by the Industrials Index (+2.8%), while the Resources Index was comparatively weaker (+0.2%) due to continuing concerns about a China slowdown, lower iron ore prices and higher costs affecting mining capital expenditure programs. This was most acutely experienced in the mid cap resources section of the Index.

The MSCI World ex-Australia Index (hedged in $A) was up 2.4% over the month. Unhedged returns (in $A) were higher (+4.6%) due to a weakening of the $A relative to all major global currencies. In a month where markets gained greater confidence in the ECB, it is not surprising that Spain (11%), Greece (9%), Italy (8%) and Portugal outperformed global markets. Notable laggards over the quarter were Ireland, Japan and Sweden.

The S&P/ASX 300 Property Trusts Index (-0.1%) lagged the broader domestic equity index over the month but remains well ahead over the last year. In August, the domestic listed property sector underperformed domestic unlisted property (+0.5%), with unlisted returns mostly reflecting income yield. Domestic listed property also underperformed global listed property (+0.3%) (hedged in $A). Listed Australian infrastructure & utilities (hedged in $A) had a very strong month (+2.4%).

Looking ahead

The outlook for financial markets continues to depend on the political outcomes in Europe. European growth rates are expected to be sluggish at best with recession in that region most likely. With the markets involved in the risk-on, risk-off game, we can expect continued market volatility, in both directions, for some time to come.

Broad stock market performance – August 2012

Performance (income and capital gain or loss) %
Australian Shares (S&P/ASX 300 Accumulation) 2.1
International Shares (MSCI AC World ex-Aust) hedged 4.6
Global Bonds (Barclays Global Aggregate (Hedged)) 0.5
Cash (UBS Bank Bills) 0.3
Unlisted property 0.5
Appreciation of $A against $US -1.8
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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