Provided by Mercer: 19/5/08
The month of April saw equity markets regain strength as the global credit crisis began to ease in response to better than expected data out of the US. Most major markets rallied with Asian markets in particular posting strong returns. Global bond yields rose, whilst a higher than expected first-quarter Consumer Price Index (CPI) result saw domestic yields also move higher. Listed Property Trusts posted their first positive returns since September 2007.
Significant developments over the month were:
- As expected the RBA left interest rates unchanged. Commentary at the time of the announcement was less hawkish than previous observations.
- Domestic economic highlights: inflation higher than predicted, consumer confidence at a record low and employment figures remaining strong.
- US and European banks announced significant losses and importantly, raised new capital. Comments from a number of prominent bankers that the credit crisis had seen the worst brought clarity to the banking market and improved investor sentiment in both credit and equity markets.
- The US Federal Reserve delivered a 25bps cut in both the Fed Funds rate and the discount rate, citing “continued weakness in economic activity” for its decision.
- US GDP was higher than expected and highlighted that US exports are enjoying high levels of activity as a result of the weakened US dollar. The US labour market continued to weaken.
- Oil rose 12.0% hitting a high of US$119.70 per barrel (almost double the price at the same time last year) before closing the month at US$113.70/barrel. Conversely, Gold fell 5.1% to close at US$869.95/oz after an announcement from the IMF that it would sell some of its reserves.
The median returns of the Mercer Pooled Fund and Capital Stable Fund Surveys for April 2008 were +2.4% and +1.2% respectively.
Australian Shares
Strong commodity prices and positive movement in the US banking system supported the Australian market which posted its first positive return in 6 months. The S&P/ASX 300 index rose 4.5% in April, although it is still down 8.2% this financial year. The continued rise in oil prices combined with strong commodity prices led resource stocks to post strong returns. Origin Energy was a highlight, returning +52.6% after the announcement of a UK company’s takeover bid. Not surprisingly, Energy (+10.3%) and Materials (+9.3%) led the sector returns in April, followed by Financials Ex Prop (+4.2%) which also made a significant contribution. The Consumer Discretionary sector (-6.4%) suffered due to high interest rates and rising food prices that curtailed spending.
Overseas Shares
In aggregate, overseas shares returned +6.2% in local currency terms and +1.9% on an unhedged basis. US market returns were positive over April. The Dow Jones returned +4.5%, the S&P500 +4.8% and the NASDAQ +5.9%, all in local currency terms. European markets were also positive. The DAX (Germany) returned +6.3%, the CAC (France) +6.1% whilst the FTSE (UK) returned +6.8%, again in local currency terms. Asian markets posted robust returns. The Hang Seng (Hong Kong) returned +12.7%, the Shanghai (China) +6.3%, the Indian BSE 200 +11.6%, whilst the Nikkei (Japan) returned +10.6%, again all in local currency terms.
Property
Domestic listed property trusts surged returning +4.2% over April, whilst domestic unlisted property returned an estimated +0.3% over the month.
Fixed Interest
Australian ten year bond yields rose 22bps to 6.28% whilst the UBS Composite Bond Index was flat for the month. Global bond yields also rose, the US ten year bond yield rose 31bps to 3.73%. The Citigroup World Government Bond Index and the Lehman Global Aggregate Bond Index returned -0.7% and -0.1% respectively, on a fully hedged basis.
Currency
Over April the local currency gained 3.2% against the US Dollar, 3.6% against the Pound Sterling, 5.1% against the Euro, and 8.4% against the Yen. The local currency returned +2.6% on a trade weighted basis.
This information has been prepared by Mercer (Australia) Pty Ltd ABN 32 005 315 917 for general information only. The information does not take into account your personal objectives, financial situation or needs. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult a licensed or appropriately authorised financial adviser before making any investment decision.
