Investment update for July 2012
Mixed results for markets during July
The dominant themes of the last financial year have continued into this financial year. The markets gained greater confidence that the European Central Bank (ECB) and Federal Reserve would take action to stimulate their economies. Meanwhile, Asian markets struggled to reach positive territory due to concerns that slower global economic growth played a large part in the disappointing Japanese earnings reporting season. In contrast, and against the context of bearish economic news, nearly 70% of the 321 reporting companies in the S&P500 outperformed analysts’ expectations.
The S&P/ASX300 Index finished July up 4.2%. Small cap stocks barely managed to reach positive territory, whereas large caps achieved 5.0% over the month and outperformed the broader market. The strong market performance overall was driven by the Industrials Index (+5.9%), while the Resources index struggled (-0.6%) due to concerns about a China slowdown impacting commodity prices. Financials (+7.2%) had a stellar month on the back of investors attracted to the higher dividend yield. Telstra continued its stellar run, and drove the Telecos sector up 8.3% over the month.
The MSCI World ex-Australia Index (hedged in $A) was up 1.4% over the month. Due to a rally in the $A relative to all major global currencies, unhedged returns (in $A) were dragged lower (-1.5%). In a month where markets gained greater confidence in the ECB, it is not surprising that European markets led global markets. Ireland, Italy, Japan and Spain were the only developed markets to post negative returns. Emerging markets (unhedged in $A) underperformed global markets, and fell by 0.6% over the month. Apart from India, all major emerging markets posted positive returns (in local currency terms).
The yield on 10-year Government bonds for Australia, Euro area, Japan, UK and the US tightened over the month, reflecting investor sentiment towards defensive assets. Longer duration Australian Inflation Linked bonds, Australian Semi-Governments and global credit were the standout performers over the month in hedged $A terms as spreads contracted.
The outlook continues to depend on political outcomes in Europe. At best, European growth rates are expected to be sluggish, with recession in that region most likely. With the markets involved in the risk-on, risk-off game, we expect continued market volatility, in both directions, for some time.
Broad stock market performance – July 2012
|Performance (income and capital gain or loss) %|
|Australian Shares (S&P/ASX 300 Accumulation)||4.2|
|International Shares (MSCI AC World ex-Aust) hedged||-1.5|
|Global Bonds (Barclays Global Aggregate (Hedged))||1.6|
|Cash (UBS Bank Bills)||0.3|
|Appreciation of $A against $US||2.7|
|Check out AvSuper’s weekly returns and quarterly performance results Please note that past performance is not always a reliable indicator of future performance.|
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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