Provided by Mercer: 16/7/08
The month of June saw a significant decline in equity markets, driven by record oil prices, persistent inflationary pressures, slowing global growth and continued fallout from the credit crisis. Bond prices were positive after yields fell marginally. Listed Property Trust returns fell sharply.
Significant developments over the month were:
- As expected the RBA left interest rates unchanged at a 12 year high of 7.25%. Commentary was mixed, with inflationary concerns on one side and recessionary on the other, finely balanced.
- Domestic economic highlights: Q1 GDP rose 0.6% to be well above consensus. Consumer sentiment fell and is now at its lowest level since December 1992. Household consumption slowed sharply, rising 0.7% in Q1.
- The US Federal Reserve left the official borrowing rate at 2.0%.
- Hawkish comments from the ECB signalled their focus on price stability and likely further policy tightening, in order to control the inflation problem.
- Oil prices surged hitting an intra-day high of over US$140 a barrel before closing the month up 9.9% at US$139.96/barrel. Political unrest between Israel and Iran, production concerns in Libya and Nigerian rebel attacks on offshore rigs drove the increase.
- Gold rose 4.4% to US$924.80/oz.
The median returns of the Mercer Pooled Fund and Capital Stable Fund Surveys for June 2008 were -5.1% and -2.0% respectively.
Australian Shares
The Australian market fell 7.6% in June posting a loss for the financial year of 13.7%. After posting a positive return in May, Smaller Companies dropped by 11.3% in June, returning -20.5% for the financial year. The S&P/ASX 300 fell by 1.7% for the quarter.
Key factors driving the market lower were concerns around global growth, high interest rates, above target inflation and general domestic economic concerns. As in May, the Energy sector was a clear leader posting the only positive return for June (+1.6%) and returning a robust 41.6% over the financial year. Materials (-1.7%) also outperformed the broader market. The sectors hardest hit in June were Consumer Discretionary (-14.5%), Financials (-12.1%), and Listed Property Trusts (-11.3%). Resource stocks continued to rally in June due to strong oil and commodity prices. Bank shares fell significantly across the sector.
Overseas Shares
In aggregate, overseas shares returned -8.3% in local currency terms and -8.6% on an unhedged basis. All major equity markets fell over the month. The Dow Jones returned -10.2%, the S&P 500 -8.6% and the NASDAQ -9.1% all in local currency terms. In Europe the FTSE 100 (UK) returned -7.1%, the DAX (Germany) -9.6% and the CAC 40 (France) -11.6%, again in local currency terms. Asian markets posted poor returns. The Nikkei (Japan) returned -6.0%, the Hang Seng (Hong Kong) -9.9%, the Shanghai Composite (China) -20.3% and the Indian BSE 200 (India) -19.3%, again all in local currency terms.
Property
Domestic listed property trusts fell by a sharp 11.3%. Domestic unlisted property returned an estimated +1.0% over the month.
Fixed Interest
Australian ten year bond yields finished the month lower, falling 8bps to 6.45% at month end. The UBS Composite Bond Index returned +0.3% for the month. Global bond yields also fell, the US ten year bond yield fell 9bps and finished the month at 3.97%. The Citigroup World Government Bond Index and the Lehman Global Aggregate Bond Index returned +0.3% and +0.08% respectively, on a fully hedged basis.
Currency
Over June the local currency gained 0.7% against the US Dollar, 1.1% against the Yen, fell 0.1% against the Pound Sterling and lost 0.7% against the Euro. The local currency appreciated 0.8% 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.
