Investment update for August 2013
Positive Economic Data Leads Market Lower
Global equity markets fell over the month as strong US employment data and GDP forecasts reignited fears that the US Federal Reserve will begin winding down its quantitative easing program. Weaker sentiment was reinforced by rising tensions in the Middle East, including the possibility of US led intervention in Syria’s ongoing civil war.
Although still negative in an absolute sense, European markets performed slightly better than US markets, as positive economic data suggested an end to the long running recession. Commodity exporting nations benefited from stronger than expected economic data in China, with a rebound in commodity prices following.
The MSCI World ex-Australia Index (hedged in $A) fell 2.0% over the month while the decline of the $A against most major currencies resulted in unhedged returns (in $A) falling 1.5%. The weakest returns came from Singapore, US, UK, Japan and Germany, while Finland, Austria and Ireland posted strong gains.
For the first time in a number of months, emerging markets (unhedged in $A) outperformed developed markets as strong commodity prices boosted the returns of Materials sector stocks. Emerging market returns in local currency terms were weaker and many non-commodity exporting countries performed poorly relative to developed markets. From a sector perspective, Materials, Information Technology and Energy were the only sectors to record positive returns. Defensive sector struggled. The weakest performing sectors were Utilities, Consumer Staples and Financials.
The S&P/ASX300 Accumulation Index (+2.5%) outperformed hedged global equities as favourable economic data from China led to strong returns from most cyclical sectors, particularly broad and small cap resources. Materials, Industrials, Energy and Consumer Discretionary were the strongest performing sectors over the month.
The S&P/ASX 300 Property Trusts Index was broadly flat over the month. Residential property data continued to surprise to the upside. However, retail leasing spreads remained negative in certain sectors. Sydney reported strong leasing success in the Office sector but remained broadly in line with expectations in Melbourne and Brisbane.
Broad stock market performance – August 2013
(income and capital gain or loss) %
|Australian Shares (S&P/ASX 300 Accumulation)||2.5|
|International Shares (MSCI AC World ex-Aust)||-1.5|
|Global Bonds (Barclays Global Aggregate (Hedged))||-0.2|
|Cash (UBS Bank Bills)||0.2|
|Appreciation of $A against $US||-0.8|
|Check out AvSuper’s weekly returns and quarterly performance results|
*Estimate as at 9 September 2013
Most developed market 10-year Government bond yields rose and yield curves steepened as investors continued to price in the wind back of quantitative easing. This increase in yields had an especially negative impact in emerging markets where, over past months, strong capital inflows had resulted from investors seeking higher yielding assets. Emerging market currencies, particularly in countries such as India and Indonesia with large current account deficits, fell sharply as emerging market central banks struggled to defend against capital flight to developed markets.
As we noted last month, markets appear highly prone to rapid changes in sentiment driven by geopolitics and government economic policy.
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.