Investment update for February 2017
Positive data coloured by global risk
Most markets performed well in February. Strong corporate earnings in the US, a sharp pickup in business activity across the Eurozone and the stabilisation of China’s economy contributed to a backdrop of positive economic and market data. Yet macroeconomic and political risks are elevated, with US President Trump’s proposed fiscal policies remaining unclear, upcoming French presidential elections and tension with North Korea, following a ballistic missile test early in the month and the alleged assassination of Kim Jong-nam.
Signs of China’s economy stabilising continued through January and February. Reflecting a healthy manufacturing sector and government efforts to support the economy through infrastructure spending, China reported strong increases in both producer (6.9%) and consumer (2.5%) inflation for January. The People’s Bank of China signalled movement towards a tight monetary policy bias by increasing short term interest rates by 0.1% early in the month, hoping to force deleveraging of debt-laden firms and suppress speculative optimism within property and commodity markets as the economy stablises.
Australian shares ended the month higher (S&P/ASX300 Accumulation Index up 2.2%) as stronger than expected earnings results were delivered. Small Cap stocks rose 1.3%, and Large Cap stocks (2.4%) outperformed the broader market. Consumer Staples (6.0%), Financials (4.1%) and Property Trusts (4.1%) stocks all outperformed, while Materials (-3.2%) and Telecommunication Services (-3.1%) were the worst performing sectors.
Results showing Australia’s largest trade surplus ($3.5bn for December) and a sharp contraction of the current account deficit ($3.9bn for December quarter) were driven by surging commodity prices and increased export volumes led by Chinese demand. The Reserve Bank of Australia (RBA) provided a positive outlook on the Australian economy, and kept interest rates unchanged for the month, citing improved business sentiment and rising commodity prices.
The Australian dollar appreciated in February against the USD (1.3%) and most developed market currencies in February, which resulted in a gain for unhedged overseas equities of 1.5% (in AUD).
The Australian dollar was trading at US$0.7688 as at 28 February 2017.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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