Investment update for September 2011

The month of September was another poor month for equity markets on the back of continuing concerns in relation to European sovereign debt, worries of a ‘double dip’ US recession, and fears of a faster than anticipated slowdown in China. Commodities fared badly, especially across metals and bulk commodities including gold.

Australian equities finished the month down, affected by the same issues as markets around the world. In a period where bearish sentiment and bad macroeconomic news drove markets, defensive stocks excelled. Consumer Staples and Telecoms were the only positive performing sectors, while Energy, Materials, Financials and Industrials performed poorly. Not surprisingly, Resources performed poorly due to concerns about a China slowdown and the consequent impact on commodity prices. Small companies significantly underperformed large caps due to the weak performance of small resources stocks. Unlisted Property posted a positive return for the month with returns largely reflecting income.

The combination of poor macroeconomic news and equity market volatility triggered a continued tightening of government bond yields as investors sought ‘safe havens’ in government bonds and the USD. Global equities were down on a hedged basis, with the AUD weakening significantly against the USD although unhedged returns in AUD were slightly positive for the month. The regional indices of Asia ex-Japan, Europe and Emerging Markets all posted negative returns on an unhedged basis (in $A), while North America was marginally positive. Other than New Zealand, none of the MSCI Developed Market Country Indices reached positive figures in local currency terms – Greece, Hong Kong and Austria faring worst, with Spain, Switzerland and Japan faring better.

Globally, Consumer Staples, Health Care, Information Technology and Utilities showed positive returns in an environment where defensive stocks generally outperformed cyclicals. Energy, Materials, Industrials, and Financials fared the worst on the back of concerns about a global slowdown and European banks’ exposure to peripheral European sovereign debt.

Short-term interest rates in developed economies remain low, and bond yields continued to tighten as investors use the sector as a defensive strategy. Since 30 June 2011, the 10 year yields of Australian, Euro area, UK and US government bonds have declined. Longer term bonds were the highest performers for the month. Credit has been surprisingly resilient despite underperforming relative to government bonds.

Looking ahead

Global investment markets declined through September but rallied on the prospect of Eurozone government support for Eurozone banks potentially affected by continuing sovereign debt concerns. Although corporate balance sheets are strong, bad macroeconomics and poor sentiments are keeping global markets volatile, and investors should expect volatile markets for some time to come.

Broad stock market performance – September 2011

Performance (income and capital gain or loss) %
Australian Shares (S&P/ASX 300 Accumulation) -6.3
International Shares (MSCI AC World ex-Aust) hedged 1.0
Global Bonds (Barclays Global Aggregate (Hedged)) 1.1
Cash (UBS Bank Bills) 0.4
Unlisted property 0.5
Appreciation of $A against $US -9.3
Check out AvSuper’s weekly returns and quarterly performance results Please note that past performance is not always a reliable indicator of future performance.

 Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays

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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