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Monthly market update.

March 2017

Economic conditions continued to improve throughout March across much of the developed world. In mid-March, Managing Director of the International Monetary Fund (IMF), Christine Lagarde expressed the belief that the world economy has reached a turning point and may “snap out of its multi-year convalescence” so long as the policy environment continues to be supportive. Global macroeconomic and political uncertainty remained at elevated levels over the month, as British Prime Minister Theresa May triggered Article 50 and formally began the intricate negotiations required for UK to leave the European Union. Despite concerns about the rise of populism across Europe, there was some relief from the Dutch general election, where the Party of Freedom, led by Geert Wilders who promises to ‘de-Islamicise’ the Netherlands and leave the European Union, failed to win majority seats in the latest general election polls by a fair margin.

Over the month, the US Federal Reserve raised interest rates by 0.25% which marked the most convincing step on their path towards interest rate normalisation. Despite a continued improvement in the US economic strength and sentiment, the US Federal Reserve signaled a slower path of interest rate rises than markets had expected, indicating that they expect two further rate hikes over 2017. In response, some emerging market economies, including China, immediately tightened in an attempt to minimise capital outflows and currency depreciation. Despite the ‘dovish hike’ providing further support for the US equities, the S&P 500 trended lower over the month as investors became increasingly cautious regarding US President Donald Trump’s ability to deliver on his proposed pro-growth reforms, with critical policy details still lacking and following his first legislative setback where he failed an attempt to repeal the current US healthcare system.

The MSCI World Index ex-Australia (hedged into AUD) rose 1.1% over the month. The Australian dollar depreciated against most developed market currencies in March, which resulted in a return for unhedged overseas equities of 1.9% (in AUD). In developed markets, France (5.6%) and Germany (3.8%) outperformed the broader market, while Japan (-0.6%) and the US (0.1%) underperformed. The MSCI Emerging Markets Index (3.4%) outperformed unhedged developed markets.

The Australian economy continued to display strong economic conditions with the rapid expansion of the domestic manufacturing sector, an increase in domestic consumption and rising export income. Notwithstanding positive conditions, the Reserve Bank of Australia kept interest rates unchanged in March, highlighting the heightened risks within the Australian property market due to an acceleration of domestic household debt combined with low income growth and tepid core inflation.

The S&P/ASX300 Accumulation Index rose 3.3% in March. Small Cap stocks rose 2.7% for the month, while Large Cap stocks (3.3%) performed in line with the broader market. Utilities (6.3%), Healthcare (5.6%) and Consumer Staples (5.5%) outperformed, while Materials (0.2%) and Telecommunication Services (0.3%) were the worst performing sectors.

The yield on 10-year Australian Government bonds remained flat at 2.7% over the month. Elsewhere in the world, the US, Japanese and New Zealand 10-year Government bond yields were flat, while the UK and Euro 10-year Government bond yields rose. In Australia, long dated bonds and inflation-linked bonds both outperformed the broader market.

Market Performance – March 2017

(income and capital gain or loss) 


3 months

Australian Shares (S&P/ASX 300 Accumulation)

3.3% 4.7%

International Shares (MSCI AC World ex-Aust) unhedged

1.9% 1.0%

International Shares (MSCI AC World ex-Aust) hedged

1.1% 5.9%

Unlisted Property (Mercer Unlisted Property Funds Index (Pre Tax)

0.5% 1.4%

Listed Property Trusts (S&P/ASX 300 Property Trusts Accumulation)

0.7% -0.1%

Australian Bonds (UBS Composite Index)

0.4% 1.2%

Global Bonds (Barclays Global Aggregate (Hedged))

0.0% 0.7%

Cash (UBS Bank Bills)

0.2% 0.4%

Appreciation of $A against $US

-0.8% 5.4%

Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays

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