Marketing commentary

AssetIndex1 year return %
(annualised)
5 year
return %
(annualised)
10 year return %
(annualised)
Australian shares S&P/ASX 300 Accumulation index 13.8 11.6 3.4
 

The S&P/ASX 300 Accumulation Index was down -1.6% in the June quarter as concerns over the property market, the Australian consumer and the big banks weighed on investors. On a sector level, the best performers were industrials up +7.8%, health care up +7.0% and information technology up +5.7%. The worst performing sectors were telecommunications down -8.1%, energy down -6.0%, financials down -5.9% and consumer staples down -5.3%. Cyclical sectors fared worse on geopolitical concerns and a pause in the reflation trade. The big banks dragge the financials sector lower following the announcement of the bank levy and on general concerns regarding the property market.

Listed property trusts S&P/ASX 300 A-REIT index -5.5 14.2 0.0
 

The A-REIT sector generated a negative return of -2.99% for the June quarter. The sector continued to be pressured by the expectation of higher bond yields going forward as well as the impact of Amazon and the challenging consumer outlook on the retail sector and the retail REIT's. The driver of retail spending is disposable income and the outlook for spending looks challenging given lower real wages, increased debt to income levels and rising interest rates.

International shares MSCI World Accumulation index (AUD) 15.3 18.6 5.7
 

Many major global equity markets hit, or came close to hitting historic highs over the March quarter. This performance was despite the political noise ringing out of Britain, the Netherlands and the United States. The British Prime Minister, Theresa May, invoked article 50 of the Lisbon Treaty, officially beginning the exit from the European Union. Meanwhile, right-wing populism hit a setback in the Netherlands with Geert Wilders, the anti-Islam and anti-EU candidate losing to incumbent Prime Minister Mark Rutte. In the U.S., the Republican Party's replacement of "Obamacare" was withdrawn due to lack of support in congress. This has raised some concerns that there is less scope for Trump to be able to push through major fiscal changes. The S&P 500 gained +5.5%, the FTSE 100 was up +2.5%, the German DAX 30 was up +7.3% and the Nikkei 225 was down -1.1%. The MSCI World Index in Australian dollar terms was up +0.5% in the March quarter.

The European Central Bank left monetary policy unchanged. As announced in December, the ECB will continue the QE program at a reduced amount of €60 billion worth of assets per month from April to December 2017.  The U.S. Federal Reserve increased the federal funds rate by 25 basis points to a target range of 0.75-1.00% in its March meeting. We continue to expect a gradual move towards policy normalisation, likely culminating in a maximum of three interest rate hikes this year. The U.S. Fed minutes also indicated that tightening of QE could be appropriate this year.

Fixed interest Bloomberg AusBond Composite index (Previously called UBS Composite Bond All Maturities index) 0.3 4.3 6.2
  The US and Australian yield curves were flatter over the quarter. The Australian 3 year bond yield was unchanged at 1.91% and the 10-year fell -10bps. The US 3 year bond yield rose +6bps and the 10 year fell -8bps. Long term bond yields fell modestly due to geopolitical concerns including increased tensions between the US and North Korea, as well as concerns over Donald Trump's ability to enact tax reform.Trump created more political uncertainty following reports that he asked former director of the FBI, James Comey, to stop his investigation into former National Security Adviser Michael Flynn. The possibility of impeachment, even though it is unlikely, is a dampener for long term bond yields.
Cash Bloomberg AusBond Bank Index (previously called UBS Bank Bill index) 1.8 2.5 3.9
 

The RBA left the cash rate unchanged at a historical low of 1.50% in the June quarter but there was chatter in the market about the possibility of a rate cut this year due to the March quarter GDP result of 0.3%QoQ and 1.6%YoY. Although we have previously indicated that there is a risk of a rate cut this year, the slowdown in GDP growth wasn’t unexpected, and unlike markets, central banks do not react to single data readings.

Source: Morningstar

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