Developments in financial markets
Written and accurate as at: Jun 15, 2017 Current Stats & Facts
Australian shares
The S&P ASX200 Accumulation Index fell 2.8% in May, following April’s 1.0% return. Resources gained 1.2%, breaking the trend to outperform Industrials which posted a 3.5% loss. Small cap stocks also outperformed their larger counterparts falling 2.1% in May. Over the past 12 months, the S&P ASX200 has returned 11.1%. Sector performance was extremely skewed with Industrials (+4.7%) the best performing sector while Financials (-7.7%) ended the month significantly lower after the Bank Levy Tax was announced. Other strongly performing sectors were Energy (+2.0%) and Telecoms (+3.4%). The other poorly performing sectors were REITs (-1.1%) and Healthcare (-2.1%). Best performing stocks in the top 100 were Qantas (+18.2%), Fairfax (+17.5%) and Graincorp (+15.7%). Worst performing stocks were Vocus (-16.3%), CSR (-14.9%) and James Hardie (-13.6%).
International shares
International shares were largely positive with the Shanghai Composite bucking the trend of positive returns after Moody’s downgraded China’s credit rating. The S&P500 increased by 1.4% in May following April’s strength. A continuing flow of largely positive economic data and better than expected US corporate earnings underpinned a continued rally in US markets, with the S&P500 and Nasdaq both hitting new all-time highs during the month. Despite growing concerns about the Trump Administration’s stability and ability to enact its policy agenda, which saw the VIX index (a popular gauge of ‘fear’ in equity markets) rise 50% midmonth, we saw equity markets recover within a few days, the VIX dropped back to its extremely low levels and sovereign yields continued to fall during the month. European markets continue to post positive returns despite ongoing political uncertainty. France’s CAC index was up 0.3% while the German DAX index increased by 1.4% as the UK’s FTSE gained 4.9% and the Italian MIB rose 0.6%. Hong Kong (+4.2%) posted a positive return despite China’s downgrade, Singapore rose 1.1% and the Shanghai Composite (-1.2%) fell for the third straight month. Similarly we saw emerging markets (+2.5%) outperformdeveloped markets (+1.7%) despite China’s ratings downgrade and a further corruption probe in Brazil. In contrast, the Bombay SENSEX rose 4.1% in May.
Fixed Interest and Cash
Medium and long-term US yields move lower, whilst the 2-year bond rose, Australian 10-year and 3-year government bond yields ended the month 19 and 16 basis points lower respectively. The Futures market currently implies a 90% probability that the US Fed will hike in June, but diverges in later dates, highlighting some uncertainty regarding rates movements. Similarly the first expected ECB rate hike, based on futures pricing, is July 2019. Global investment grade returned 1.7%, outperforming Global High-Yield, which returned 1.4%. Australian credit performed strongly with the iTraxx Australia Series 27 index returning 4.97% in May, closing at 86.5 from April’s 82.4.
Property
Despite lower bond yields and improved perceptions of economic growth global REITs posted a -0.1% return. Australian property trusts posted weaker returns than their international counterparts but outperformed the broader Australian sharemarket in May slipping -0.7% as concerns about Australian retail (after the voluntary administration of Top Shop) impacted index heavyweights Westfield, VCX and SCG.
Currency and commodities
The Australian dollar traded in a 2.2 cent range, ending the month at US$0.743 with the high on May 2 and low on May 9. The US dollar strengthened against Sterling, but weakened against the Yen and Euro, the Dollar Index DXY fell 2% over the month, now down 5% year to date. Commodity prices were broadly lower with most commodities lower. Precious metals were the only sector with positive performance. The oil price also ended the month lower with WTI losing 2%.
This publication does not constitute financial product advice, investment advice or recommendations of any kind. This publication has been prepared without taking account of any person’s objectives, financial situation or needs, and so the reader should consider its appropriateness having regard to these factors before acting on it. This publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information in this publication may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. Past performance is not a reliable indicator of future performance.