August Market Update

Global growth continues to show considerable resilience despite the geopolitical tensions in the Ukraine and Middle East causing recent short-term price volatility.

 

There has been a rebound in Australian consumer confidence, with retail sales up, albeit from a low base, despite record unemployment numbers. Housing construction continues to gain momentum.

 

Although the International Monetary Fund has lowered its global growth forecast in 2014 to 3.4%, the 2015 growth forecast has been revised upwards to 4.0%.

 

The July Eurozone manufacturing data improved but continues to be impacted by the crisis in the Middle East and the Ukraine.

 

The RBA kept the cash rate at 2.5% in August, and it’s anticipated that interest rates will remain at this level well into 2015.

 

Key market numbers to the end of July are summarised in the table below:

August Market Update 1

 

Australian Equities

August Market Update 2

The S&P/ASX 300 Accumulation Index had an outstanding month in July, increasing by 4.4%. This followed the disappointing month of June.

 

The S&P/ASX 300 Industrials Accumulation Index also had a stellar month, up 3.8%. The broader S&P/ASX All Ordinaries Index was up 4.5% in July.

 

For the 12 months to 31 July 2014, the S&P/ASX 300 Accumulation Index posted a solid gain of 16.27%; while the large market caps, represented by the S&P/ASX 50 Accumulation Index, had a similar performance, returning 17.35%.

 

Interestingly, all sectors were up in July. Utilities were the lowest performing sector (up 0.9%) in July. Materials, Information Technology and Telecommunications were the best performing sectors, increasing 7.7%, 5.7% and 5.1% respectively. Overall, the performance of the ASX sectors was extremely positive with all sectors sharply higher.

 

Global equities

August Market Update 3

The MSCI World ex-Australia (unhedged) Index posted a negative return in July, down -0.25%. The MSCI World ex-Australia (hedged) was down -1.0%.

 

However, the global indices had an extremely divergent month with regards to performance.

 

The Hong Kong Hang Seng Index was the outstanding performer in July, up 6.8%.

 

The Japanese Nikkei Index was also an outstanding equity market, up 3.0% in July.

 

However, the German DAX was the worst performer across global markets covered in this analysis, down -4.3% for the month.

 

Over the 12 months to 31 July 2014, the Japanese Nikkei Index and the German DAX were the best of the major equity markets, up 14.3% and 13.7% respectively.

 

Property

August Market Update 4

In July, the S&P/ASX 300 A-REIT Accumulation Index posted a strong gain of 4.9%, outperforming the broader Australian market.

 

On a 12 month rolling basis, property marginally outperformed the ASX 300 Accumulation Index.

 

Over a 1 and 3 year period, Australian REITs have outperformed global REITs but over a 5 and 7 year period, global property has outperformed. Global property, as represented by the FTSE EPRA/NAREIT Index was up 15.3% over the rolling one year period.

 

Fixed Interest

August Market Update 5

US 10-year bond yields were up 1.2% in July, closing the month at 2.56%. Australian 10-year bond yields were marginally down (-0.08%) and closed the month at 3.51%.

 

Australian bonds rebounded after a poor June. For July, the UBS Composite Bond All Maturities Index was up 1.37%.

 

Global bonds (unhedged), as measured by the Barclays Capital Global Aggregate Index, posted positive returns for the one year period ended 31 July 2014, up 1.46%. The hedged index posted a strong one year gain of 7.58%.

 

On a 12 month basis, Australian bonds returned 5.49%. They outperformed unhedged global bonds as measured by the UBS Composite 0 + years Index, but underperformed hedged global bonds that were up 7.58%.

 

Australian dollar

In July, the Australian Dollar (AUD) was up relative to the Euro but down against other major currencies. The AUD declined -1.5% against the US Dollar (USD), to finish the month at 93 US cents. Over the past 12 months the AUD has increased 3.59% against the USD.

 

The AUD continued to gain against the Euro, up 0.79% in July. On a 12 month basis, the AUD was up 2.81% against the Euro.

 

Against the Japanese Yen, the AUD was marginally down (-0.01%) in July. On a 12 month basis, the AUD was up 8.31% against the Yen.

 

Against the British pound, the AUD was down -0.24%. On a 12 month basis, the AUD was down -6.98% relative to the British pound.

 

For more specific help and guidance with your own investment strategy or asset selection, please don’t hesitate to contact Michael Rees-Evans CFP® in our office on 02 9299 7044 or by email at michael.rees-evans@lockwood.com.au.

The information contained in this Market Update is current as at 5/8/2014 and is prepared by GWM Adviser Services Limited ABN 96 002 071749 trading as ThreeSixty Research, registered office 150-153 Miller Street North Sydney NSW 2060. This company is a member of the National group of companies. Additional information obtained from Super Ratings and van Eyk Research.
Any advice in this Market Update has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice, consider whether it is appropriate to your objectives, financial situation and needs.

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