Investment update for May 2016
Mixed performance in global markets
Performance in global markets was mixed in May, with Australian and US stock markets moving higher while a number of European and Asian markets retraced.
The Australian market produced a positive return in May, with the focus early in the month on the Reserve Bank of Australia’s (RBA) interest rate activity. Data releases in the US and China provided opposing influences, but contributed to the Australian market ending the month in positive territory.
The US market also finished off the month in the green, with the S&P500 gaining 1.5% over the month. Market sentiment was initially negative as the release of Chinese manufacturing data renewed concerns for global growth. However, a number of US economic data releases surprised on the upside (e.g. US new home sales increased 16.6% over the month), leading to a bounce in the equity market late in the month.
In aggregate, European markets performed well in May as the MSCI All Country Europe Index rose 4.7%. European markets benefited from the depreciation of the Euro against other major currencies and signs of a broader global recovery. On the other hand, the British market remained fairly stagnant over the month as markets appeared to pause in anticipation of the looming Brexit referendum.
Performance of Asian markets was mixed as the Chinese share market weakened, while the Japanese stock market bounced strongly for the month. The Shanghai Composite Index ended the month down 0.7%, after falling sharply in early May in reaction to disappointing Chinese trade data renewing concerns over China’s future economic prospects. On the other hand, the Nikkei Index rose over the month, largely driven by positive sentiment in Japan’s Leading Economic Index (an indicator of the direction of the economy) and retail sales coming in ahead of expectation.
The S&P/ASX300 climbed strongly in May (+3.1%), as the RBA cut the cash rate by a further 0.25% to 1.75% in response to weaker than expected economic data. The market overall performed up at approx. 2.6%. Health Care (9.4%), IT (7.1%) and Consumer Discretionary (5.6%) stocks outperformed, while Materials (-3.0%) and Energy (-1.6%) were the worst performing sectors.
The Australian Dollar depreciated against the USD in May, down 5.1%. However, this translated as an upside for international equities with a return of +6.1% (in AUD) on an unhedged basis (pre currency).
The AUD was trading at US$0.7242 as at 31 May 2016.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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