Developments in financial markets
Written and accurate as at: Jul 17, 2017 Current Stats & Facts
Australian shares
The S&P ASX200 Accumulation Index eked out a 0.17% gain thanks to dividends following a 2.75% fall in May. Resources lost 2.1%, underperforming Industrials which posted a 0.6% gain, although over the financial year Resources heavily outperformed Industrials, gaining 22.9% compared to 12.6%. Small cap stocks also outperformed their larger counterparts increasing 2.1% in May. Over the past financial year, the S&P ASX200 has returned 14.1%. Sector performance was extremely skewed with Healthcare
(+6.1%) the best performing sector while Energy (-6.9%) ended the month significantly lower after Brent oil prices had their worst first half performance since 1998. Other strongly performing sectors were IT (+1.4%) and Financials (+1.6%). The other poorly performing sectors were REITs (-4.8%) and Utilities (-2.7%). Best performing stocks in the top 100 were Vocus (+19.5%), Bluescope Steel (+14.9%) and Magellan Financial Group (+14.5%). Worst performing stocks were Fairfax (-11.6%),
Origin (-10.9%) and Santos (-9.8%).
International shares
International shares were mixed, slipping at the end of the month as markets responded to comments from central bankers that implied extraordinary easy monetary policy will come to an end, with the MSCI ACWI gaining 0.6%. The S&P500 increased by 0.6% in June following May’s strength. Whilst the popular ‘FANG’ (Facebook, Apple, Netflix, Google) stocks struggled during the month, Financials and Healthcare were the best performing sectors. European markets slumped after the ECB indicated it may end QE and raise rates by 2020, with MSCI Europe falling 1.1% in USD. France’s CAC index was down 2.7% while the German DAX index slipped 2.3% as the UK’s FTSE fell 2.4% and the Italian MIB was the best performer only edging down 0.6%. Looking at Asia, the Japanese Topix gained 3.0% and the Hang Seng rose 1.4%. Emerging markets (+1.7%) continue to outperform developed markets despite commodities having a generally negative month, with Turkey, China and Mexico the best performers.
Fixed Interest and Cash
Fixed Interest markets had a tumultuous month as central banks struck a hawkish tone. The past month saw US 10 year yields rise 10 bps ending the month at 2.3%. Similarly we saw medium and short-term US yields move higher, whilst the 30-year bond fell 3 bps. On the same note Australian yields moved higher, with the 10-year and 5-year government bond yields ending the month 22 bps higher respectively. The Futures market currently expect at least one US rate hike over the next 12 months.
Similarly the first expected ECB rate hike is marginally closer than last month, now at March 2019 rather than July. Global investment grade returned 0.4%, the same as Global High-Yield, from a US dollar perspective. European Investment Grade strongly outperformed US and Asian counterparts. Australian credit struggled with the iTraxx Australia Series 27 closing at 84.1 from May’s 86.5
Property
Global REITs posted a 0.6% return while Australian property trusts posted weaker returns than their international counterparts. They also underperformed the broader Australian share market in June slipping 6.3% as Dexus raised A$550m of equity and most trusts traded ex-dividend on 29th of June. Higher bond yields also hurt this bond-sensitive sector.
Currency and commodities
The Australian dollar gained 3.5% this month, taking its YTD returns to 6.7%. The US Dollar Index DXY fell 1.5% over the month, now down 4.7% YTD. Commodity prices were mixed as all metals except Tin rose, with Iron Ore and Lead rising 9.5% and 9.6% respectively, whilst Gold slipped 1.9% and WTI Oil fell 4.75% after concerns arose about a supply glut after OPEC tensions arose between Saudi Arabia and Qatar.