Investment update for November 2013
Wait and see
The timing of the tapering of the US Federal Reserve’s Quantitative Easing (QE) program and the likely impact on growth and capital flows was at the front of investor minds in November. Also influencing market pricing over the month was Fed Chair nominee Janet Yellen being confirmed by the United States Senate and stronger than expected economic data releases. In Europe the European Central Bank (ECB) cut interest rates as inflation came in below expectations and well below the ECB’s target. Conditions in the Eurozone remain depressed and many indicators point toward the need for further easing of monetary conditions in all countries except Germany. Economic data released in China pointed toward a stabilisation of conditions and announcements made following the Third Plenary Session were well received by the market.
The MSCI World ex-Australia Index (hedged to $A) rose 2.6% over the month and the decline of the $A against most major currencies resulted in a return of 5.7% (in $A) for global equities on an unhedged basis. Across developed markets, the strongest performing country in local currency terms was Japan, however, from an Australian investor’s perspective, much of the strong equity market performance was offset by currency weakness. The weakest return came from New Zealand, while Greece, Italy and Spain also produced negative returns. Emerging markets (unhedged in $A) performed strongly returning 2.1%. Among the largest countries in the Index, China was the strongest performer while Brazil and India lagged.
The S&P/ASX300 Accumulation Index (-1.4%) underperformed hedged global equities and recorded its first negative month since June 2013. The Energy and Industrials sectors were the weakest performers, while Financials (ex-Property Trusts) was the only sector to produce a positive return. Small cap stocks underperformed large caps for the third consecutive month. Small cap Industrial stocks significantly outperformed small cap Resources stocks, as commodity prices fell. The S&P/ASX 300 Property Trusts Index produced a negative absolute return and lagged the broader Australian equity market.
Broad stock market performance – November 2013
(income and capital gain or loss) %
|Australian Shares (S&P/ASX 300 Accumulation)||-1.4|
|International Shares (MSCI AC World ex-Aust)||5.7|
|Global Bonds (Barclays Global Aggregate (Hedged))||0.1|
|Cash (UBS Bank Bills)||0.2|
|Appreciation of $A against $US||-3.5|
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The Reserve Bank of Australia (RBA) left the Cash Rate unchanged at 2.5% and noted that the effect of recent cuts is continuing to work its way through the interest rate sensitive sectors of the domestic economy. The $A depreciated (-3.5% against the $US) as the RBA stated that the domestic currency is overvalued relative to fundamentals and hinted at the possibility of intervening in currency markets to influence the exchange rate. The $US strengthened following better than expected economic data, while the Yen fell as Japanese policy makers hinted at ongoing monetary stimulus. Emerging market currencies experienced a volatile month as discussions around when the Fed would taper QE continued.
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.