Investment update for December 2015
US Fed delivers first rate rise in nine years
During December, markets were predominantly driven (yet again) by central bank policy decisions (both the US and European central banks made announcements), while crude oil remained a dominant factor. The oil price fell approximately 9%, as The Organization of the Petroleum Exporting Countries (OPEC) agreed to keep its production ceiling unchanged at 30 million barrels per day.
The US equity market sold off in December, ending the month down 1.7% lower, but 1.3% higher for 2015. The US Federal Open Market Committee (FOMC) delivered a long awaited 25bps increase in interest rates, which was the first rate rise in nine years.
European markets performed poorly over the month with the MSCI All Country Europe Index (unhedged in AUD) falling 3.1%. Markets reacted negatively to Mario Draghi’s announcement to boost the European Union’s Quantitative Easing (QE) program in early December, as the proposal fell short of market expectations. The markets did recover some ground late in the month but remained in the red at month end.
Asian equities were also down over December particularly in Japan as the Nikkei retracted by 4.9%. By comparison, the Shanghai Composite Index fell 1.3%. The difference between the two markets reflected the different market reactions to the US Federal Reserve rate increase. While Japan fell 1.9% on the day of the hike, the Shanghai Composite fell only 0.1%, proving to be much less sensitive.
Locally, the S&P/ASX300 Accumulation Index posted a solid monthly performance of 2.7% (and 2.8% for 2015). Small Cap stocks returned 3.9% for the month, outperforming the broader market and Large Caps stocks (2.7%), while Mid Cap stocks (2.0%) underperformed. Consumer Staples (7.1%) and Consumer Discretionary (4.5%) stocks outperformed in the lead up to Christmas, while Energy (-7.5%) was the worst performing sector.
Much to the annoyance of their respective central banks, many developed market currencies rallied in December. The euro (up 2.9%) made most of its gains immediately following the ECB’s poorly received stimulus announcement. The kiwi appreciated considerably (up 4.0%) due to the central bank’s easing and an improved economic outlook. The Australian dollar (up 0.8%) rose due to the rebound in iron ore and copper prices.
The pound sterling (down 2.0%) fell on weak manufacturing data and lower growth expectations.
The AUD vs USD was trading at 0.7306c at the end of the month.
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.