Investment update for September 2017
Global equity markets rally
Global equity markets rallied in September as markets grew accustomed to ongoing geopolitical tensions between North Korea and the US. The ‘war of words’ intensified between these two countries, as the United Nations Security Council approved new sanctions on North Korea, following a nuclear test. Over the month, several major central banks increased their bias towards monetary policy tightening. Along with the modest upside surprise in US inflation, these synchronised moves by central banks led to a rally in global yields.
Early in the month, US equity prices were largely suppressed by concern about the impact of recent consecutive hurricanes on the US economy and the Fed’s interest rate normalisation plans. The US Dollar Index fell to a two-year low, over 10% below the peak in early 2017 following US President Trump’s election. However, equity prices and US Dollar weakness largely reversed in the second half of the month, on the news of the upside inflation surprise and less severe forecasts for the economic impact of the hurricanes.
The MSCI World Index ex-Australia (hedged into AUD) rose 2.5% over the month. In developed markets, Germany (6.2%) and France (4.9%) outperformed the broader market, while the UK (-0.8%) and Hong Kong (-0.5%) underperformed. The MSCI Emerging Markets Index (0.7%) underperformed unhedged developed markets.
The latest Australian GDP was slightly below expectations. The economy grew by 0.8% for the June 2017 quarter, bringing the year-on-year growth to 1.8%.
The S&P/ASX300 Accumulation Index was broadly unchanged over the month. Small Cap (1.3%) stocks strongly outperformed the broader market, while Large Cap (-0.2%) stocks underperformed. Health Care (2.3%), Energy (1.1%) and Financials (1.1%) outperformed, while Telecommunication Services (-4.5%) and Utilities (-3.6%) were the worst performing sectors.
Towards the end of the month, the Australian Dollar depreciated sharply due to an increasing divergence in monetary policy outlook for Australia relative to other global developed economies, a fall in iron ore prices of nearly 20% over the month and a credit rating cut on China’s government debt by Standard & Poor’s. This resulted in a return for unhedged overseas equities of 3.5% (in AUD).
The Australian dollar was trading at US$0.7839 as at 30 September 2017.
Source – JANA, FactSet, S&P, MSCI, Mercer, Bloomberg, Barclays
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