Investment update for October 2015
Partial recoveries as volatility subsides
October was a good month for global markets, recovering partially from losses in August and September while volatility subsided. The unexpected move by Westpac to raise its mortgage rate started speculation that the RBA would cut rates in November, which sparked a recovery of the S&P/ASX300 Index. The US Federal Open Market Committee (FOMC) indicated that a rate rise in December remains a possibility.
US markets gained strongly. The S&P500 returned 8.3% for the month. European markets also performed well in October, encouraged by various EU central banks. The Riksbank (Swedish nation bank) and the European Central Bank delivered buoyancy to European financial markets by announcing potential plans to enhance existing quantitative easing programs.
Asian markets rallied strongly in October. The Nikkei rose 9.7% on hopes that the Bank of Japan (BoJ) might also expand its quantitative easing program. When the BoJ subsequently indicated that it would not, investors did not seem worried. In China, attempts to spark economic growth included The People’s Bank of China cutting interest rates (for the sixth time in less than a year), and further reducing the amount of cash that banks must hold in reserve. The Shanghai Composite Index gained 10.8% and the Hong Kong rose 8.6%.
The MSCI World ex-Australia Index (hedged into AUD) rose by 8.0% over the month. Across developed markets, Germany (11.8%), Greece (11.4%) and Japan (10.9%) were strong, while Denmark (1.5%) and the Canada (1.7%) were the weakest performing countries in local currency terms. The MSCI Emerging Markets Index (5.5%) outperformed developed markets.
The S&P/ASX300 Accumulation Index rebounded partially from poor monthly performances in August and September to post a solid monthly performance of 4.4%. Small Caps stocks (7.6%) outperformed the broader market while Large Caps stocks (3.7%) underperformed. Outperforming sectors included Energy (8.0%), Utilities (6.9%) and Health Care (6.2%) stocks, while Telecoms (-2.8%) was the worst performing sector.
Currencies of less developed countries or commodity producers rallied during the month. The Australian dollar (up 1.8%) climbed despite lower short-term yields and some bad economic data points, like second-quarter gross domestic product.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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