Investment update for January 2017

Markets largely driven by political headlines

Global context

In January, markets were largely driven by political headlines. Donald Trump was inaugurated as the US President on 20 January and the initial ‘Trump rally’ witnessed late last year has dissipated. Investors reduced their positions in infrastructure and energy.  So far, the new Trump administration has not added detail to its fiscal policy proposals.

On 17 January, UK Prime Minister Theresa May confirmed her plans for a ‘hard Brexit’. Increased certainty over the Brexit outcome led to a strong appreciation of the British Pound.

International markets

After trading flat in the first half of January, the US S&P500 Index ended the month higher after Trump issued orders to build two new US oil pipelines. Investors became increasingly concerned that Trump’s protectionist stance and controversial immigration plans might outweigh any benefits from his pro-business policies. Along with a lack of clarity around other proposed fiscal policies, this led to a depreciation of the US Dollar Index by 2.6%. The US Federal Reserve reaffirmed plans to gradually increase interest rates, citing strong employment and rising inflation stemming from a number of Trump proposals. 

Australian markets

The S&P/ASX300 ended the month lower after climbing early in the month supported by iron ore prices. On 25 January, Moody’s Investors Services released a report which reaffirmed Australia’s AAA sovereign credit rating, cited Australia’s robust institutional framework and emphasized Australia’s relatively strong fiscal metrics.

Currency

The Australian dollar appreciated in January against the USD (4.8%) and most developed market currencies, supported by the rally in commodity prices, strong Chinese GDP growth and weakness in the US dollar. This resulted in a loss for unhedged overseas equities of 2.3% (in AUD).

The Australian dollar was trading at US$0.7567 as at 31 January 2017.

Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays

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