Provided by Mercer: 16/1/09
Global share markets managed to close the month higher whilst domestic markets posted a slight loss after three consecutive months of sharp decline.
Governments around the world combated the economic downturn with aggressive rate cuts and fiscal stimulus packages. Domestic bonds rallied following the RBA’s larger-than-expected 100bps rate cut, while US 10-year bond yields plunged sharply as the Federal Reserve revised the Fed fund rate target range. Domestic listed Property Trusts saw a significant sell-off.
Significant developments over the month were:
- The Reserve Bank of Australia (RBA) cut official interest rates by 100bps to 4.25% following the early December meeting, taking the cumulative four month cut to 300bps.
- Domestic economic data released was mixed. Consumer confidence increased 7.5% in December due to falling interest rates and petrol prices. Q3 company profit, retail sales, the number of housing finance approvals and private sector credit all posted positive results. On the negative side, employment fell 15,600 in November and business condition worsened.
- US economic data was poor. Employment fell sharply in November, bringing the unemployment rate to 6.7%. Business productivity, the trade deficit, retail sales, industrial production and total housing starts all weakened, while on the positive side consumer sentiment rose in November. CPI plunged 1.7% in November, recording its largest one month drop since 1974, and PPI also fell 2.2%.
- The US Federal Reserve set a rate of between 0% and 0.25%, while other central banks also made substantial rate cuts. The European Central Bank slashed rate by 75bps and The Bank of England brought the interest rate down to 2%.
- In addition to rate cuts by central banks, governments around the world announced fiscal stimulus packages to boost economic activities. The US Fed also started to employ quantitative easing as a monetary policy tool and pledged to purchase large amount of agency debt and mortgage-backed securities.
- Oil ended the month at US$39.25 (WTI) per barrel, down 28.9% from its November close. Weakening demand was the dominating factor to the sharp fall despite the OPEC announcement of a production cut and the Gaza strip conflict.
- Gold finished the month 7.8% higher at US$879.7/oz due to a weaker US Dollar.
The median returns of the Mercer Pooled Fund and Capital Stable Fund Surveys for December 2008 were -0.3% and 0.1% respectively.
Australian Shares
After three consecutive months of sharp declines, December saw the Australian share market stabilise, with the ASX300 returning -0.1% over the month. Small cap stocks outperformed large and mid cap counterparts posting a return of +4.2%. Property trusts (-10.4%) were the largest detractor, bringing the twelve month return to -55.3%. IT (+12.8%) and Consumer Disc (+8.0%) were the best performing sectors over December.
Overseas Shares
December saw global share market close higher after three consecutive months of substantial sell-offs. The MSCI World ex Aus index returned +1.1% in local terms, but the appreciation of the Australian Dollar (1.8% in trade weighted terms), led unhedged Australian investors to return -3.7%. The S&P 500 index increased 0.8%, resulting in a 12 month return of -38.5%, the Dow Jones returned -0.6% and the NASDAQ +2.7% in local currency terms. In Europe, the FTSE 100 (UK) returned 3.4%, the DAX (Germany) +3.0% and the CAC 40 (France) -1.4% in local currency terms. Asian markets rallied, the only exception being the Chinese Shanghai stock market, which fell by 2.7%. The Nikkei (Japan) gained 4.1%, the Hang Seng (Hong Kong) returned 3.6% and the Indian BSE 200 (India) 8.9%, all in local currency terms.
Property
Domestic listed property trusts (A-REITs) fell 10.4% in December and are down 55.3% over 12 months. Domestic unlisted property returned an estimated -4.0% over the month.
Fixed Interest
The interest rate cut of 100bps led Australian ten year bond yields to plunge 61bps to 3.99% at month end. The UBS Composite Bond Index returned +1.2% for the month. US ten year bond yields finished 71bps lower at 2.21% by month end. The Citigroup World Government Bond Index and the Barclays Capital Global Aggregate Index returned +2.3% and +2.5% respectively, on a fully hedged basis.
Currency
The Australian Dollar appreciated 7.5% against the US Dollar, 1.8% against the Yen, 13.0% against the Pound Sterling, and 1.8% on a trade weighted basis. However it depreciated 2.6% against the Euro.
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.
