Provided by Mercer: 14/4/08
Global and local equity markets continued their descent in March as affects of the global credit crisis continued to impact heavily on the outlook for US economic activity. Domestic bonds rallied as yields fell, whilst global bonds provided a poorer comparative return after yields weakened. Domestic Listed Property Trusts were flat.
Significant developments over the month were:
- As expected the RBA increased the domestic cash rate by 25bps to 7.25%. The accompanying statement was less hawkish than previous minutes signalling the very real prospect of an extended period of unchanged policy.
- Other domestic economic data released was generally softer than consensus with consumer confidence, 4Q GDP, 4Q current account deficit, building approvals and retails sales all disappointing. The labour market however continued to remain robust.
- US economic data was again soft and did little to allay fears that the US was heading into recession. Employment, consumer confidence and manufacturing data was all poor.
- The US Federal Reserve responded to further weak US economic data by instigating a number of initiatives to stimulate liquidity in financial markets. These included: cutting both the official federal funds rate and the discount cash rate; and, faciltating the takeover of Bear Sterns by JP Morgan.
- Oil and gold surged hitting record highs before being sold down by month end. Oil fell 0.2% to close at US$101.54/barrel, whilst gold fell 5.9% to US$916.40/oz.
The median returns of the Mercer Pooled Fund and Capital Stable Fund Surveys for March 2008 were -1.2% and -0.1% respectively.
Australian Shares
A further increase in official interest rates and ongoing turmoil in global credit markets saw the Australian share market lose ground for a fifth consecutive month.
The S&P/ASX 300 index was down 3.4% over March and 14.6% for the quarter. The local bourse is now in the midst of its worst monthly run for 15 years and had its worst quarterly result since the 1987 crash. A fall in commodities prices did not help Materials (-8.7%) stocks, whilst investors remained concerned about the outlook for household spending which also saw Consumer Discretionary (-8.0%) stocks avoided. Financials (+0.6%) outperformed the broader market after investors began to realign themselves with the sector after months of underperformance.
Unsurprisingly, given the performance of the financials sector, it was a host of banks (lead by the NAB) leading the positive contributors list. Conversely, BHP Billition (-9.4%) headed the negative contributors. Another notable detractor was Oxiana (-19.7%) who were involved in s $6bn takeover bid for fellow miner Zinifex.
Overseas Shares
In aggregate, overseas shares returned -2.1% in local currency terms, whilst the strong depreciation of the Australian dollar saw returns enhanced for unhedged investors to +1.6%. US markets were mixed. The S&P500 returned -0.6%, the NASDAQ +0.3% whilst the Dow Jones was flat, all in local currency terms.
European markets fell with the FTSE returning -3.1%, the DAX (Germany) -3.2% and the CAC (France) -1.7% in local currency terms. Asians markets were sold off. The Nikkei (Japan) returned -7.9%, the Hang Seng (Hong Kong) -6.1% and the Shanghai (China) -20.1%, again in local currency terms.
Property
Domestic listed property trusts had a flat return over the month and have now returned -24.2% over 12 months.
Fixed Interest
Australian ten year bond yields fell 16bps to 6.05% whilst the UBS Composite Bond Index returned +1.6% for the month. Global bond yields also fell, the US ten year bond yield fell 10bps to 3.41%. The Citigroup World Government Bond Index and the Lehman Global Aggregate Bond Index returned +0.4% and +0.3% respectively, on a fully hedged basis.
Currency
Over March the local currency lost ground. The dollar returned -2.4% against the US Dollar, -2.3% against the Pound Sterling, -6.5% against the Euro, and -6.7% against the Yen. The local currency returned -4.0% 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.
