Investment update for July 2015
Global financial market shifts
Global context
The Chinese share market continued to tumble in July despite efforts by the Chinese government to prop the market up, with the Shanghai Composite ending the month down 14.3%. Economic weakening in China and a danger that its 2015 growth target might be out of reach, along with the circumstances surrounding the Greek referendum and bailout deals spilled over to impact markets globally.
Oil fell significantly in July on speculation that increased OPEC supplies and threats to demand in China will prolong a global oversupply. Prices also fell across raw materials more broadly. This was largely due to concerns that slower economic growth in China will dampen demand.
International markets
After a rocky start, the US equity market ended higher in local currency terms. Early in the month, the market was impacted by global events, and although investors eventually refocused on the strength of the US economy to see equities rally into earnings season, the Chinese sell-off impacted US markets in the latter half of the month.
European markets were rocked by the Greek situation at the beginning of the month but recovered after announcements of an agreement. The next pressure point will be 20 August, when Greece is due to make a payment of €3.5 billion to the European Central Bank.
Japanese equities appeared somewhat resilient to the moves in China, with the Nikkei 225 gaining 1.7% over the month outperforming other Asian developed markets. The situation in China severely impacted some Asian markets with Singapore (-3.2%), Hong Kong (-1.7%), Korea and Taiwan all considerably down over the month.
The MSCI World ex-Australia Index (hedged into AUD) rose by 2.8% over the month. Across developed markets Switzerland (7.4%), Denmark (7.0) and Ireland (5.6%) performed strongly. Emerging markets unhedged in AUD returned -2.5%, and underperformed developed markets, again driven primarily by Asian and South American markets.
Australian markets
Over the past year the ASX200 index was flat, but Resources and Energy sectors were both down 25%. Every other sector was up. Commodity prices have clearly been hit hard, and resource securities along with them. Even quality resource names such as BHP & RIO fell by more than 20% through the past year.
The S&P/ASX300 Index rose 4.3% over the month. Small Caps stocks rose by 1.6%, underperforming Large Caps stocks (4.4%). Healthcare (9.5%) and Consumer Staples (7.5%) performed well, while Materials (-1.4%) was the only sector in the red.
Currency
The Australian Dollar significantly depreciated against all major developed currencies over July, which shows in a decrease against the USD -4.4%, EUR -3.6%, GBP -4.2% and JPY of -3.8%.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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