April 2012
Mixed economic data continues to drive market sentiment
In April, a generally positive corporate reporting season in the US was overshadowed by more subdued economic data from China, Europe, Japan, UK and the US itself. The Spanish debt and political uncertainty in France triggered volatility in the European markets. In addition, the corporate reporting season in Japan didn’t meet market expectations and UK economic growth continues to underwhelm.
Over the month, global equities lost ground on a hedged basis (-1.2%). With the $A strengthening marginally against the $US, unhedged returns (in $A) were slightly weaker (-1.7%). Unhedged returns (in $A) for all major regional indices were negative. Japan, Latin America and Europe were the underperforming regions and Spain, Italy and Greece bore the brunt of market concerns in relation to their sovereign debt position. Within the emerging markets, China performed strongly in local currency terms due to expectations that authorities would loosen policy to improve growth. Argentina was the notable loser, losing 30% in local currency terms. In such an environment, the defensive sectors of Consumer Staples and Telecoms were the only positive performing sectors over the month. All other sectors were negative with Materials, Industrials, IT and Financials faring the worst.
In contrast to global markets, Australian equities were positive (+1.3%) driven by lower than expected inflation figures and market expectations that China would loosen monetary policy. Market appetite for yield was high, driving investors towards higher yielding stocks within Financials, Telecoms and Listed Property Trusts. In a reflection of the ‘risk off’ sentiment driving markets, Energy, Materials, Industrials, IT and small caps underperformed the broader market. In a rare occurrence, virtually all of the major listed REITs achieved a positive result over the month. The listed property sector outperformed unlisted property by a large margin, with unlisted returns mostly reflecting income yield.
The RBA aggressively cut rates by 0.50% to 3.75% in April. Long duration Australian Government Bond indices were the standout performers over the month. For most of the major developed regions, five and ten year Government bonds tightened over the month. Central bank rates remain well below long term averages. Hedged global credit continues to be resilient in periods of risk aversion, driven by investors seeking higher yielding returns.
Investors should expect volatility to continue for the time being as market sentiment proves to be closely aligned to political and policy announcements. A “risk on”, “risk off” sentiment continues to drive markets.
| Market Performance – April 2012 | Performance (income and capital gain or loss) % |
| Month | 3 months |
| Australian Shares (S&P/ASX 300 Accumulation) | 1.3 | 4.6 |
| International Shares (MSCI AC World ex-Aust) unhedged | -1.7 | 7.5 |
| International Shares (MSCI AC World ex-Aust) hedged | -1.2 | 6.2 |
| Unlisted Property (Mercer Unlisted Property Funds Index (Pre Tax) | 0.5 | 2.2 |
| Listed Property Trusts (S&P/ASX 300 Property Trusts Accumulation) | 5.4 | 7.2 |
| Australian Bonds (UBS Composite Index) | 1.6 | 2.3 |
| Global Bonds (Barclays Global Aggregate (Hedged)) | 1.0 | 1.9 |
| Cash (UBS Bank Bills) | 0.4 | 1.1 |
| Appreciation of $A against $US | 0.5 | -2.0 |
Source: JANA Investment Advisers Pty Ltd, April 2012