Investment update for June 2016
Brexit result has global impact
Unsurprisingly, much of the performance of global markets in June was driven by the Brexit referendum, which saw the United Kingdom (UK) decide to leave the European Union (EU). The market bounced significantly following the murder of UK Labour MP Jo Cox, due to speculation that this terrible event would improve the likelihood of the UK remaining in the EU. Markets continued to rise for the week leading up to the referendum. The Australian market watched the voting closely, with the S&P ASX 300 falling over 3% on 24 June, when the failure of the “remain” campaign became apparent.
The UK equity market finished the month over 4% higher, while European markets slumped over the month, with Greece (-24.9%), Ireland (-11.4%) and Italy (-8.9%) underperforming. The UK markets initially tumbled on the news of the Brexit, but the depreciation of the Pound Sterling combined with an expectation of market stimulus to encourage the markets to end the month surprisingly higher.
The Brexit result also had an impact on the US market, and the S&P 500 fell sharply on the news of the decision. However, despite significant volatility, the index finished the month slightly positive.
Performance of Asian markets was mixed. The Shanghai Composite Index fell sharply upon the Brexit announcement, but climbed back to positive territory at months end (up 0.4%). The impact of the Brexit vote on the Japanese market was even more pronounced than the European market. The Nikkei Index closed the month over 9% lower, as investors seeking refuge in safe currencies drove the appreciation of the Yen.
The MSCI World ex-Australia Index (hedged into AUD) fell by 1.1% over the month, outperformed by the MSCI Emerging Markets Index (1.3%).
The Australian market followed weak global market sentiment in the first half of June and continued to fall following the release of Australian employment data which revealed a gain mostly in part time roles, with large downward revisions made to last month’s number.
The S&P/ASX300 Accumulation Index retraced 2.4% in June. Small Cap stocks fell 1.3% for the month, outperforming the broader market and Large Caps stocks (-2.6%). Utilities (5.6%), Property Trusts (3.5%) and Materials (0.6%) stocks outperformed, while IT (-7.6%) and Financials ex Property Trusts (-5.9%) were the worst performing sectors.
The Australian dollar appreciated in June against the USD up 2.8%. This resulted in returns to International equities of minus 3.8% on an unhedged basis.
The Australian dollar was trading at US$0.7426 as at 30 June 2016.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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