Provided by Mercer: 18/3/08
The Australian sharemarket fell over February after the RBA again increased the official rate of borrowing whilst global equities also lost ground as fears of a US recession continued to gather steam after weak US economic data was released.
Domestic bond prices fell as yields moved higher, whilst global bond prices rose as yields weakened. Domestic Listed Property Trusts fell over the month.
Significant developments over the month were:
- As expected the RBA increased the domestic cash rate by 25bps to 7.00%. The accompanying statement was quite hawkish and was later reinforced by the RBA's quarterly Statement on Monetary Policy which warned "monetary policy is likely to need to be tighter in the period ahead."
- Other domestic economic data released was mixed. Employment and the trade deficit were above consensus, whilst consumer and business confidence, housing data and retail sales were relatively soft. The January unemployment rate was 4.1%, a 33 year low.
- US economic data released was much weaker than expected. The Fed lowered its GDP growth forecast for 2008, consumer sentiment fell and US growth (4Q) slowed markedly. Concerns around inflation remained with core CPI (for January) rising at the fastest monthly pace since January 2006. The US economy for 2007 grew at its slowest pace in five years, rising 2.2%, compared with 2.6% in 2006.
- The price of oil surged 11.0% to US$101.78/barrel, whilst gold rose 5.3% to US$973.90/oz.
The median returns of the Mercer Pooled Fund and Capital Stable Fund Surveys for February 2008 were -1.6% and -0.6% respectively.
Australian Shares
The S&P/ASX 300 index lost 0.7% by the close of a volatile February driven by an interest rate rise and the release of a number of company financial results. This was the fourth successive month that the local bourse had fallen, the first such run of declines since July - October 1992. The S&P/ASX 300 index has now fallen over 16.0% since the end of October 2007.
Small cap stocks (+3.8%) outperformed their mid (+1.8%) and large cap (-1.7%) counterparts. Resource stocks such as Energy (+12.7%) and Materials (+10.5%) were stronger over the month due to a surge in the price of oil and other commodities.
Telecom Services (+12.2%) also benefited from the strong performance of Telstra (+12.8%). Investors continued to be wary of Financials ex Prop (-12.5%) and Property Trusts (-5.6%) as concerns lingered over the affect on these sectors by the credit crisis that originated in the US.
Overseas Shares
In aggregate, overseas shares lost 1.7% in local currency terms. The strong appreciation of the Australian dollar against all major currencies saw returns fall 5.3% on an unhedged basis. US market returns were negative. The Dow Jones was down 3.0%, the S&P500 lost 3.5% and the NASDAQ fell a sharp 5.0%, all in local currency terms.
Continental European markets were also negative with the DAX (Germany) adrift 1.5% and the CAC (France) behind 1.6% in local currency terms.
Conversely, in the UK the FTSE was up 0.1% in local currency terms. Asian markets were mixed. The Nikkei (Japan) and the Hang Seng (Hong Kong) moved ahead 0.1% and 3.7% whilst the Shanghai (China) index lost 0.8%, again in local currency terms.
Property
Domestic listed property trusts declined 5.6% over the month and are now down 27.2% over 12 months. Unlisted property was up an estimated 0.5% over February.
Fixed Interest
Australian ten year bond yields rose 12bps to 6.21% whilst the UBS Composite Bond Index fell 0.6%. Global bond yields fell, the US ten year bond yield fell 9bps to 3.51%. The Citigroup World Government Bond Index and the Lehman Global Aggregate Bond Index rose 0.9% and 0.6% respectively, on a fully hedged basis.
Currency
Over Februray the local currency gained 4.8% against the US Dollar, 4.8% against the Pound Sterling, 2.2% against the Euro, and 2.6% against the Yen. The local currency appreciated 5.1% 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.
