Developments in financial markets
Written and accurate as at: Mar 07, 2019 Current Stats & Facts
Positive momentum in equities continued in February as investors gained further confidence that the US/China tariff issues would not deteriorate to a worst case scenario and Chinese growth prospects also improved. Expectations the RBA’s next move may be a rate cut saw Australian bond yields fall and may have provided an extra lift to Australian equities which outperformed their international counterparts by a significant amount.
Australian shares
The S&P/ASX 200 Accumulation Index returned 6.0% in February following a 3.9% in January. The resources sector again outperformed the rest of the market by returning 6.9% compared to the 5.7% return for the industrials. Small caps largely matched the resources stocks by returning 6.8% in the month. The sharemarket has returned 7.1% over the past 12 months, a significant turnaround from the return of -2.8% for the 12 months to December 2018. All sectors except consumer staples posted a positive return with Coles and Woolworths dragging consumer staples lower. The best performing sectors were Financials (+9.8%), Energy (+7.9%) and Information Technology (+7.6%). The worst performing sectors were Consumer Staples (-1.5%), Healthcare (+1.0%) and Property Trusts (+1.8%). At the stock level, the worst performing stocks in the ASX100 were Cochlear (-11.9%), Bank of Queensland (-11.4%) and Coles Group (-9.4%). The best performing stocks again included Magellan Financial Group (+24.7%) which was joined by IOOF (+35.9%) and Cleanaway Waste (+20.2%).
International shares
The MSCI World ex Australia Index (A$) returned 5.6% in February and has returned 10.1% over the past 12 months. Emerging markets were less positive with a 2.7% return but remain in negative territory over the 12 month period. Over the month, the S&P 500 returned 3.0% with positive momentum maintained but tempered by somewhat weaker economic data. The major European markets of Germany (+3.1%), France (+5.0%) and Italy (+4.7%) all posted positive returns, although Spain and many of the emerging European markets went backwards. The Shanghai Composite posted a massive 13.8% increase in February as investors return to Chinese equities following a period of concern around the growth outlook.
Fixed Interest and Cash
Australian 10-year bond yields fell to 2.1% in February from 2.24% a month earlier as expectations mount that the next move by the RBA may be a rate cut. This saw the Bloomberg AusBond Composite Bond Index post a 0.9% return in the month, boosting the 12 month return to 6.2%. In contrast, US 10-year government bond yields increased to 2.72% with investors reflecting that pessimistic growth views and the “Fed on hold” rhetoric may have been overplayed. As a result, the Bloomberg Barclays Global Aggregate Bond Index hedged in $A returned a meagre 0.1% in February and 3.3% for the year.
Property
As market sentiment improves, some of the flows that had boosted property trust returns in search of a level of safety have ebbed. The S&P/ASX 200 AREIT Accumulation index returned 1.8% in February, lagging the broader market. Similarly global REITs were relatively subdued with the FTSE EPRA Nareit Index (Hedged) returning 0.4% in February following the 10.2% increase in January.
Currency and Commodities
The Australian dollar fell 2.5% to US$0.7094 from US$0.7276 a month earlier, largely in response to the view that a domestic rate cut had become more likely. Commodity prices were mainly higher although gold ended the month slightly lower at US$1319.2. Copper posted the strongest return, increasing 6.6% in February while the increases in lead (+3.1%), zinc (+3.1%) and tin (+3.9%) were less extreme. Iron ore prices saw a marginal increase to US$85/mt following back to back months of double-digit increases. West Texas Intermediate (WTI) oil prices increased by 6.0% in February to end the month at US$57.2 per barrel.