Investment update for March 2017
Strong economic conditions met with caution
While economic conditions continued to improve across much of the developed world throughout March, global macroeconomic and political uncertainty remained at elevated levels, and the intricate negotiations required for the UK to leave the European Union formally began.
Over the month, the US Federal Reserve raised interest rates by 0.25% which marked the most convincing step on their path towards interest rate normalisation. Despite a continued improvement in the US economic strength and sentiment, the US Federal Reserve signaled a slower path of interest rate rises than markets had expected, indicating that they expect two further rate hikes during 2017. In response, some emerging market economies, including China, immediately tightened in attempts to minimise capital outflows and currency depreciation. The S&P 500 trended lower over the month as investors regarded US President Donald Trump’s ability to deliver on his proposed pro-growth reforms with increasing caution.
The MSCI World Index ex-Australia (hedged into AUD) rose 1.1% over the month. In developed markets, France (5.6%) and Germany (3.8%) outperformed the broader market, while Japan (-0.6%) and the US (0.1%) underperformed. The MSCI Emerging Markets Index (3.4%) outperformed unhedged developed markets.
In Australia, strong economic conditions continued with the rapid expansion of the domestic manufacturing sector, an increase in domestic consumption and rising export income. The Reserve Bank of Australia kept interest rates unchanged in March, showing heightened risks within the Australian property market with acceleration of domestic household debt combined with low income growth and tepid core inflation.
The S&P/ASX 300 Accumulation Index rose 3.3% in March. Small Cap stocks rose 2.7% for the month, while Large Cap stocks performed in line with the broader market. Utilities (6.3%), Healthcare (5.6%) and Consumer Staples (5.5%) outperformed, while Materials (0.2%) and Telecommunication Services (0.3%) were the worst performing sectors.
The Australian dollar depreciated against most developed market currencies in March, which resulted in a return for unhedged overseas equities of 1.9% (in AUD).
The Australian dollar was trading at US$0.7631 as at 31 March 2017.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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