Investment update for June 2012
The ‘risk on, risk off’ merry-go-round continues
Markets generally bounced back during June, with positive news out of the European Union (EU) Summit was the catalyst for improvements. The EU bailout funds (the European Financial Stability Facility and the European Stability Mechanism) will now provide a direct capital injection to troubled banks rather than providing capital indirectly via governments. This funding is contingent on the commencement of a euro banking union, where the European Central Bank (ECB) will become the joint EU bank supervisor from 1 January 2013. Euro leaders also agreed to apply €130b to measures aimed at jobs creation and investment in the region. Whilst economic data out of China, the USA and Europe continue to point to a general global slowdown, the positive news out of the EU gave markets a boost… for now.
Domestically, the ASX300 finished June up 0.5%. Small cap stocks underperformed the broader market declining by -4.8%, while large caps outperformed the broader market, achieving +1.6% over the month. In aggregate, and contrary to more recent risk rallies, domestic equities underperformed relative to global equities despite Australia’s strong fundamentals. Energy, Materials, and Industrials were the notable laggards, largely due to stock specific factors. Health Care, Telecommunications and Consumer Staples strongly outperformed the broader market. Financials had a stellar month with investors attracted to the higher dividend yield.
Global equities ended June higher with the MSCI world index (hedged in $A) posting 4.5% due to renewed confidence in a potential solution to the EU sovereign debt and banking crisis. Unhedged returns (in $A) were dragged lower due to a rally in the $A relative to all major global currencies. In a month where EU headlines drove the market rally, it is not surprising that European markets led global markets, lead by Spain, Italy and Belgium. New Zealand was the only developed market to post a negative return. Emerging markets (in $A) underperformed global markets, falling by 1.7% over the month. Once again the defensive sectors of Telecoms and Financials were well supported, while Consumer Discretionary, Materials, Industrials and IT as the laggards.
The yield on 10-year Government bonds for Australia, Euro countries, UK and US increased over the month, reflecting improving investor sentiment towards risk assets, but remain well below long term averages. Australian Supranationals and global credit were the standout performers over the month in hedged $A terms as spreads contracted.
The outlook for financial markets continues to depend on the European political outcomes. European growth rates are expected to be sluggish at best with a very likely recession in that region. With the markets involved in the risk-on, risk-off game, we can expect continued market volatility, in both directions, for some time to come.
Broad stock market performance – June 2012
|Performance (income and capital gain or loss) %|
|Australian Shares (S&P/ASX 300 Accumulation)||0.5|
|International Shares (MSCI AC World ex-Aust) hedged||-0.6|
|Global Bonds (Barclays Global Aggregate (Hedged))||0.1|
|Cash (UBS Bank Bills)||0.3|
|Appreciation of $A against $US||5.7|
|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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