Investment update for May 2013

A volatile month for markets

May was a challenging month for markets in the context of mixed economic data. The dominant question for global markets was whether the US Federal Reserve would scale back its quantitative easing program. US GDP estimates were revised down but domestic consumption and housing continue to show improvement.

Markets also became increasingly concerned about the robustness of Chinese economic growth. Chinese data regarding retail sales, manufacturing, corporate profits and general business activity all contributed to a much more sombre outlook for China. As a consequence, iron ore prices declined 17% over the month. In Europe, the European Central Bank’s resolve to maintain supportive monetary policies, aimed at inducing an economic recovery, allowed markets to temporarily ignore concerns of a continuing recession and a record high unemployment rate of 12.2%. In Japan, concerns about whether Japan’s aggressive fiscal monetary policy would be enough to achieve a sustainable path to recovery caused a pull back in their local stock market.

International shares

The MSCI World ex-Australia Index (hedged in $A) was up 2.2% over the month. With the $A weakening significantly against all major currencies, unhedged returns (in $A) were higher at 8.9%. The US (2.1%) and the UK (2.8%) both performed solidly over the month. The Euro region posted mixed returns, with Germany (5.2%) and France (4.2%) being the standout performers, while the laggards were Greece (-6.3%), Portugal (-3.0%) and Spain (-1.2%). The Japanese market (-2.2%) experienced its first monthly fall in ten months.

Australian shares

The S&P/ASX300 Accumulation Index significantly underperformed both hedged and unhedged global equities, returning -4.5%.  In contrast to prior months, Industrials were the main detractor from the overall performance  while Resources outperformed the broader market due to strong performance by BHP. Large caps had a poor month with the top 20 stocks (-5.5%) underperforming the broader market index due to a selloff of the major banks.  Energy (2.1%) and Materials (2.2%) performed well, as did IT (4.6%). All other sectors recorded negative performance over the month. The notable laggards were Consumer Staples, Financials, Telecommunications and Utilities.

Broad stock market performance – May 2013

(income and capital gain or loss) %
Australian Shares (S&P/ASX 300 Accumulation) -4.5
International Shares (MSCI AC World ex-Aust) 8.9
Global Bonds (Barclays Global Aggregate (Hedged)) -1.3
Cash (UBS Bank Bills) 0.3
Unlisted property 0.5*
Appreciation of $A against $US -7.6
Check out AvSuper’s weekly returns and quarterly performance results

*Estimate as at 7 June 2013

Looking ahead

Over the month, the RBA cut rates by 0.25%. Global credit (as measured by the Barclays Capital Global Credit Index, hedged in $A terms) and Australian Inflation Linked Bonds also lost ground over the month. In summary, it was a difficult month for fixed interest investments overall. Recent events highlight that the market recovery is still vulnerable to shocks and rapid changes in sentiment.

We trust you find this information useful in understanding how your AvSuper investment is performing and welcome your feedback on how we can improve the information we provide to you.

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