Investment Update for March 2022
Global equity markets experienced a rebound during the month of March, despite concerns over rising interest rates, high inflation and the ongoing war between Russia and Ukraine. Nevertheless, over the three-month calendar year to date period, most major equity indices are still exhibiting negative performances.
The Australian equity market recorded another month of positive returns. The resources sector continues to be a major contributor to the positive performance, driven by high commodity prices. Financials also contributed to performance with major banks displaying strong stock price rises. The FY23 Federal budget, which was delivered during the latter part of the month, witnessed additional government commitments towards sectors such as infrastructure, clean energy and cybersecurity.
Economic indicators within the US were mixed during the month. While the March ISM Manufacturing index was down, non-farm payrolls data was above consensus. The unemployment rate dropped, with the US labour market remaining resilient. In addition, nominal wage growth over the year remains high in conjunction with rising inflation.
The European equity market recorded a small negative return for the month, driven by concerns of the ongoing Russian/Ukraine war and rising energy costs. Europe is a large importer of oil and natural gas from Russia, which increases the region’s vulnerability to the conflict.
Commodity prices continued to rise, as further sanctions were applied to Russia. Energy prices remain high amidst the increased uncertainty of future supply from Russia. The price of gold also rose in response to uncertainty among investors regarding the global macroeconomic outlook.
Bond yields continued to increase materially during the month, on the back of rising interest rate expectations and concerns around inflation, which led to the negative performances of major bond indices. The US Fed officially raised its benchmark rate during the month and signalled plans for further rate rises in the months ahead in order to address the issue of high inflation within the economy. In addition to rate rises, the US Fed also plans to wind down other forms of stimulus, including its asset purchase program, which was expanded during the beginning of the Covid-19 pandemic as a measure to stabilise financial markets. Jerome Powell, US Fed Chair, stated that necessary measures to control inflation will be undertaken and is not ruling out a more aggressive hike in rates ahead.
The Australian dollar outperformed against the major currencies given the strength exhibited by Australia’s major export commodities such as iron ore and coal.
Listed real assets performed strongly over the month, with international real assets outperforming Australian listed real assets.