Returns in May were solid – bond and share markets both performed very well. Bond yields fell in all the major bond markets. We had particularly good share price gains in the emerging markets, particularly in India, where there’s a lot of optimism about the new government and new prime minister, who were elected with a massive majority.
Here in Australia, the share market produced a reasonable return. However, the market did lag global markets, especially as the price of iron ore fell substantially over the month and local mining stocks lost quite a bit of ground. The Federal Budget didn’t really produce any lasting impact on financial markets, which makes sense, given that we don’t think the budget really changes the medium to longer-term outlook for the economy or financial markets. It’s also unclear whether all the government’s budget measures will get through the Senate.
The Australian dollar gained ground against the major currencies so unhedged global shares faced some headwinds in May.
Even though the US Federal Reserve is gradually unwinding its quantitative easing program, the reality is that monetary policy is still extremely accommodative: official interest rates are still very low across the world – or virtually zero in some cases. The Bank of Japan has continued its quantitative easing program, and there’s some chance the European Central Bank will start one.
There’s still plenty of money searching for higher returns, and that’s a very positive environment for financial markets, even if some of the recent economic news across the world has been mixed. And markets continue to largely overlook the crisis in the Ukraine, which hasn’t been resolved, and will also likely wobble and then recover as Irag unfolds.
The S&P/ASX 300 Accumulation Index had a fairly average month in May, increasing by 0.65%, with Energy being the best performing sector returning 2.9%.
The S&P/ASX All Ordinaries Index had a flat May, posting a return of 0.1%.
For the 12 months to 31 May 2014, the S&P/ASX 300 Accumulation Index posted a solid gain of 16.12%; while the large market caps, comprising of the S&P/ASX 50 Accumulation Index, performed even better, returning 16.97%.
The Materials and Consumer Discretionary sectors were the worst performing sectors in May, declining 2.9% and 0.9% respectively. Energy, Health Care and Utilities were the best performing sectors. Overall, the performance of the sectors for the month was contained within a relatively narrow band of -2.9% to 2.9%.
Big movers this month
Going up: Energy +2.9%
Going down: Materials -2.9%
The MSCI World (ex-Australia) Accumulation Index posted a solid return in May, up 1.97%.
Apart from Australia, the US Dow Jones was the worst performing market returning 0.8% for the month. The best performing of the majors was the Hang Seng up 4.3%.
Over the 12 months to 31 May, the German DAX still leads the way returning 19.1%.
Overall, May was a good month for world markets, with all the majors up during May.
In May, the S&P/ASX 300 A-REIT Accumulation Index posted a very small gain of 0.05%, underperforming the broader Australian market as measured by the S&P/ASX 300 Accumulation Index that returned 0.65%.
On a 12 month rolling basis, property continues to underperform compared to the ASX 300 Accumulation Index. In fact, the 12 month return for the S&P/ASX 300 A-REIT Accumulation Index is around 10% lower than the ASX 300 Accumulation Index.
Over the 1 year period, Global REITs have outperformed Australian REITs. Over the long-term, global property has continued to outperform the Australian listed property sector. Global property, as represented by the FTSE EPRA/ NAREIT Index was up 11.68% over the rolling one year period.
US 10-year bond yields were lower in May, closing the month at 2.48% (down from 2.65%). Australian 10-year bond yields were also down and closed the month at 3.66% (down from 3.95%).
Australian bonds rebounded after a poor April. For the month, the UBS Composite Bond All Maturities Index was up 1.37%.
Global bonds, as measured by the Barclays Capital Global Aggregate Index, posted positive returns for the month of May. The unhedged index posted a small gain of 0.14%, while the hedged equivalent had a solid positive return of 1.17%.
On a 12 month basis, Australian bonds returned 4.14%, but underperformed relative to unhedged global bonds that were up 8.53%. Hedged global bonds were also higher returning 5.85%.
In May, the Australian Dollar (AUD) was up relative to the four major currencies. The AUD increased 0.45% against the US Dollar (USD) to finish the month at 93.07 US cents. Over the past 12 months the AUD has declined against the USD, down 2.93%.
The largest AUD gain in May was against the Euro (up 2.07%). On a 12 month basis, the AUD is down 7.80% against the Euro.
Against the Japanese Yen, the AUD was fairly flat in May, rising only 0.05%. Against the British pound the AUD was up 1.12%. The largest 12 month fall in the AUD was relative to the British pound (down 12.26%).
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