Investment update for January 2016
Concern about oil prices, Chinese growth and the US Fed’s plans
Volatility returned to the markets in January with widespread selloffs in global and Australian equities. Markets were concerned about the declining price of oil, Chinese economic growth and the US Federal Reserve’s planned cycle of interest rate increases.
In the US, the S&P500 retraced 9% by mid-January before dovish language used by the Federal Reserve (as it held rates constant) and the stabilisation of the price of oil (later in the month) reversed this decline to a degree. The S&P500 ended the month 5.1% lower.
European markets performed poorly over the month with the MSCI All Country Europe Index (unhedged in AUD) falling 3.8%. Again, concerns about Chinese growth and oil drove performance. In late January, markets reacted positively when the European Central Bank announced the potential for further European Quantitative Easing (QE) but this was not enough to counteract the month’s losses.
In China, the Shanghai Composite Index fell significantly, finishing the month -22.6% lower, ensuring Asian equities were a significant focus in January. The Chinese market was halted twice in the first week of January to limit losses and the Chinese government attempted to support the market. By 5 January, it had purchased approximately $20 billion worth of equities in 2016.
Similar themes drove Australian markets. Australian data was mixed in January with resilient inflation data coming in at 0.1% for December and 1.7% for the year. Yet, new home sales dropped 0.3% to -2.7% month on month, indicating a potential housing construction slowdown.
The Australian market sold off for eight consecutive days to begin the 2016 calendar year but recovered along with global markets towards month end. The S&P/ASX300 Accumulation Index fell 5.5%, Mid Cap stocks retraced 3.6% for the month, outperforming the broader market and Small Caps stocks (-5.1%), while Large Cap stocks underperformed (-5.8%). Materials (-9.1%) was the worst performing sector.
Most currencies fell relative to the US dollar in January. Anticipation of Chinese manufacturing data put pressure on the Australian dollar (down 2.8%), but it rallied during the last few days of January following better-than-expected domestic inflation and Chinese Purchasing Managers Index.
The AUD vs USD was trading at 0.71c at the end of the month.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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