After reaching a high in early September, at the time of writing in mid-September it appears that Australian shares have begun to revert to their typical seasonal pattern, as summarised in the diagram below.
For clients not fully invested this may be a good time to top up on sectors showing value – which is mainly Australian shares and emerging markets, especially North Asia, as summarised in our current ‘tipping point’ table below:
The S&P/ASX 300 Index underperformed global equities in August, returning 0.64%. Over the last three months the index returned 3.56%. Over the year the Australian market has risen 14.15% against 21.05% from global equities in Local Currency terms and 15.35% in AUD terms.
The MSCI World ex-Aust Net Div Local Currency Index rose by 2.72% in August, after declining 0.95% in July. From an Australian investor’s perspective, the world index rose by 1.62%. The MSCI World Index ex-Aust (LC) is up 21.05% year-on-year and in AUD terms the index has surged 15.35%.
Listed Property and Infrastructure
REITs performed strongly in August, up 1.68%, taking year-to-date returns to 19.47%. That is well above the equity market return of 5.32%.
Extremely easy financial conditions in global markets driven by central banks focusing on battling deflationary risks and have supported the search for yield. Together with the ongoing decline in bond yields, easy financial conditions have underpinned interest in REITs. Dwelling approvals posted a small but better than expected rise in July, up 2.5%mth vs market expectations of a 1.9% gain.
The outlook for REITS depends on the outlook for bond yields and whether the economy can continue to transition to domestic led growth without upsetting the bond market.
Fixed interest and Cash
The UBS Composite Bond Index climbed 1.01% in August, after rising 0.29% in July. This took the year-on-year return to 6.90%. The UBS Australian Govt Bond Index was 1.12% higher in August after rising by 0.33% in July.
The RBA continues to signal that policy remains on hold. With domestic growth sub-trend and inflation broadly in the target range there is no justification for a move in either direction. The rise in the AUD against a backdrop of declining commodity prices is of increasing concern to the RBA, although not enough to lead to a change of policy bias.
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 firstname.lastname@example.org