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Monthly market update.

April 2017

April saw rising geopolitical tension across the globe, with North Korea continuing to defy UN sanctions on nuclear tests and the US launching a missile strike against a Syrian airbase on reports of controversial chemical weapons being used by the Russian-backed Syrian President Bashar al-Assad. These events weighed on markets early in the month, and were further compounded by the decision of British Prime Minister Theresa May to call on a snap general election, which saw the UK market fall sharply. After a poor start, market sentiment improved following the first round of French election which saw the pro-growth presidential candidate Emmanuel Macron leading the election polls, with the MSCI France Index surging over 4% in a single day, ending the month 3.6% higher. The improvement in market sentiment was felt beyond Europe, with the MSCI World Index rising 1.4% in the day following the election and continuing to rise towards the end of the month.

In the US, the release of minutes from the Federal Reserve Board of Governors March meeting indicated that most members expect the central bank to reduce their $4.5tn balance sheet over the next few years, while continuing to gradually tighten monetary policy towards interest rate normalisation. However, there is a growing divergence between promising sentiment related indicators (sometimes referred to as ‘soft data’) and weaker hard, economic data. Towards the end of the month, the Trump administration released a one-page broad tax reform plan, which claims to be the biggest tax cut in the US history, reducing the corporate tax rate from 35% to 15%.

The MSCI World Index ex-Australia (hedged into AUD) rose 1.3% over the month. The Australian dollar depreciated against most developed market currencies in April, which resulted in a return for unhedged overseas equities of 3.6% (in AUD). In developed markets, France (3.6%) and Switzerland (3.3%) outperformed the broader market, while the UK (-1.3%) and Canada (0.4%) underperformed. The MSCI Emerging Markets Index (4.3%) outperformed unhedged developed markets.

Business sentiment continued to strengthen across Australia, with the NAB Business Survey reporting that business conditions had reached levels not achieved since the global financial crisis. Annual headline inflation increased to 2.1% in March, falling within the Reserve Bank of Australia’s target of 2-3% for the first time in two years. Over the month, production of coking coal in Queensland was impacted by Cyclone Debbie, as miners were forced to declare force majeure on deliveries. This led to a large spike in coking coal prices, as China looked to fill the short term supply shortage from alternate sources.

The S&P/ASX300 Accumulation Index rose 1.0% in April. Small Cap stocks fell 0.3% for the month, while Large Cap stocks (1.0%) performed in line with the broader market. Industrials (4.1%), IT (3.5%) and Healthcare (3.4%) outperformed, while Telecommunication Services (-9.5%) and Consumer Staples (-2.5%) were the worst performing sectors.

The yield on 10-year Australian Government bonds fell to 2.6% over the month. Elsewhere in the world, the US, Japanese and New Zealand 10-year Government bond yields fell, while the UK and Euro 10-year Government bond yields were flat. In Australia, long dated bonds and inflation-linked bonds both outperformed the broader market.

Market Performance – April 2017

Performance
(income and capital gain or loss) 
%

Month

3 months

Australian Shares (S&P/ASX 300 Accumulation)

1.0% 6.6%

International Shares (MSCI AC World ex-Aust) unhedged

3.6% 7.2%

International Shares (MSCI AC World ex-Aust) hedged

1.3% 5.7%

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

0.5% 3.1%

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

2.6% 7.5%

Australian Bonds (UBS Composite Index)

0.8% 1.4%

Global Bonds (Barclays Global Aggregate (Hedged))

0.7% 1.7%

Cash (UBS Bank Bills)

0.1% 0.4%

Appreciation of $A against $US

-2.0% -1.5%

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


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