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Provided by Mercer: 14/5/10

The month of April saw mixed performance across global equity markets. Most markets started the month positively; before European sovereign debt concerns weighed on sentiment triggering a sell-off in equity markets which outweighed the impact of good global economic and corporate profit data released throughout the month. Global long bonds rallied after last month’s sell-off, whilst domestic bonds were also positive. Listed Property Trust returns were strong.

Significant developments over the month were:

The Reserve Bank of Australia raised (for the second consecutive month) the official interest rate by 25bps to 4.25%. The RBA commentary said that “with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average."
Domestic economic data released over the month was mixed. Employment increased in March by 19,600, keeping the unemployment rate at a relatively low 5.3%. Consumer confidence (as measured by the Westpac-Melbourne Institute) fell 1.0% in April, whilst housing finance commitments fell 1.8% in February.
US economic data released was very positive. The Federal Open Market Committee maintained a Federal funds target range of 0% to 0.25% and kept the term “extended period” in its statement despite stating that the labour market was stabilising. The ISM manufacturing index rose from 56.5 in February to 59.6 in March, the highest reading since June 2004. The Conference Board consumer confidence index rose to 57.9 in April from 52.3 in March. Retail sales rose 1.6% in March, the biggest gain in four months.
Late in the month ratings agencies downgraded the rating on Greek bonds to “junk”, and with fears of contagion spreading to other heavily indebted European nations, this prompted a sell-off in equity markets.
China announced a series of measures aimed at cooling the growth in the residential property market, including raising the down-payment on first homes of more than 90 square metres to 30% from 20% and raising down-payments on second homes to 50% from 40%.
Crude oil (WTI) gained 3.5% for the month to finish at US$86.2 per barrel. Gold gained 5.9% to finish at US$1,179/oz.

Australian Shares

The Australian market fell 1.3% in April due to concerns over China tightening monetary policy, the potential impact of fiscal strain in Europe on global growth and the possible changes in taxes on resources as part of the Henry review. Small cap stocks outperformed their large cap counterparts for the second successive month. Over 12 months the S&P/ASX 300 is up 32.5%.

Sector returns were mixed. Healthcare was the poorest performing sector, whilst Resources also underperformed. Telecoms and LPTs were the strongest performing sectors.

BHP Billiton (-6.3%) unsurprisingly headed the negative contributors list which also contained Rio Tinto (-8.0%) and Woodside Petroleum (-3.0%). Conversely, CBA (+3.9%) was the biggest positive contributor for the month.

Overseas Shares

In aggregate, overseas shares returned 0.3% in local currency terms and -1.4% in AUD terms as measured by the MSCI World ex Australia index. Value stocks (-0.8%) outperformed their Growth (-1.7%) counterparts as well as the broader market in AUD terms. In the US, the S&P 500 Index returned +1.5%, the Dow Jones +1.4% and the NASDAQ +2.6%, all in local currency terms. In Europe, the FTSE 100 (UK) returned -2.2%, the DAX (Germany)
-0.3% and the CAC (France) -4.0% in local currency terms. In Asia, the Chinese Shanghai Composite Index returned -7.7%, Hong Kong’s Hang Seng
-0.6%, the Nikkei (Japan) -0.3%, conversely the India BSE 100 Index returned +6.2% again all in local currency terms.

Emerging markets lost 0.2% but have gained 24.0% over 12 months, on an unhedged basis for an AUD investor.

Property

Domestic listed property trusts (A-REITs) returned 3.9% for the month, bringing the 12 month return to 38.9%. Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index) rose by 2.8% for the month and has now gained 53.0% over 12 months.

Fixed Interest

The UBS Australia Composite Bond index gained 0.6% for the month. The Citigroup World Government Bond (ex-Australia) Index and the Barclays Capital Global Aggregate Bond Index both gained 0.7% on a fully hedged basis over the month.

Currency

The significant strength of the AUD continued over the month, appreciating against all major trading partner currencies. The local currency appreciated 1.4% against the US Dollar, 2.0% against the Yen, 3.2% against the Euro, 0.5% against the Pound Sterling and 1.1% on a trade weighted basis.

Investment commentary - 30 April 2010