Investment update for February 2015

Surprise cut spurs Australian markets

Global context

Early in February, the Reserve Bank of Australia made a surprise cut to the official cash rate, down 25bps to 2.25%. The cut spurred rallies in Australian equity and fixed interest markets, as well as already elevated property markets.

It was a very strong month for US equities as markets rebounded to exceed previous highs from December. The S&P500 and Dow Jones climbed to all-time highs and the NASDAQ rose to a level unseen since the dot-com bubble fifteen years ago. 

Continental markets were mostly buoyed by anticipation of the European Central Bank’s quantitative easing, commencing in March. Amid continuing Bank of Japan quantitative easing, Japan also had a strong month.

International markets

The MSCI World ex-Australia Index (hedged into AUD) rose 6.1% over the month. A lower unhedged return of 5.3% reflects the appreciating Australian Dollar. The strongest performing developed markets were Greece, Ireland and Austria, while Hong Kong and New Zealand represented the weakest in local currency terms. 

Despite Russia posting a second month of strong growth and Brazil bouncing back, emerging markets (2.6%, unhedged in AUD) underperformed developed markets. Globally, performance was strong across all sectors, with Materials and Consumer Discretionary leading the way, and Utilities alone finishing in the red. 

Australian markets

The S&P/ASX300 Index appreciated 6.9% over the month. Performance was very strong across all segments of the market. Resources stocks were a standout as the S&P/ASX300 Resources Accumulation Index rose 11.3%. Materials also performed strongly, with a return of 11.7%. Telcos gave back some of January’s gains (-1.5%) and the Consumer Staples sector was flat.

Currency

Despite a Greek debt-extension deal and the Bank of Japan’s perseverance in the face of weak economic data, the euro ( down 0.8%) and yen (down 1.8%) both slipped lower against the U.S. dollar. The New Zealand dollar (up 4.2%) rallied on sharply higher prices for dairy and a continued neutral central bank rhetoric. At 3.5%, New Zealand offers high policy rates for a AAA-rated country, while other major central banks are cutting or biased toward cutting already-lower policy rate levels. The Australian dollar (up 0.6%) and Chilean peso (up 2.8%) both stabilized on higher commodity prices. 

*Estimate as at 5 March 2015
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays

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