Investment commentary - 30 April 2009



Provided by Mercer: 21/5/09

Equity markets continued their rally that began in March to produce another month of strong returns. The Australian market, despite lagging other overseas markets continued to build and April saw the market climb to its highest level for 2009. Domestic and global bond yields rose over the month. Domestic Listed Property Trusts moved higher after functionality in credit markets began to improve.

Significant developments over the month were:

  • The RBA cut the cash rate by 25 basis points to 3.0%. Market expectation had wavered between no change and a 50 basis point cut.
  • Domestic economic data was mixed. Leading indicators such as unemployment and retail sales posted negative figures with unemployment hitting a 5-year high of 5.7% in March. Retail sales fell further than expected in February. Consumer confidence rose 8.3% in April on the back of fiscal stimulus and a stock market rally.
  • US economic data continued to be generally poor. Unemployment hit 8.5% in March; the highest rate since November 1983. GDP growth fell below consensus at -6.1%. The first time in 34 years that GDP has declined for 3 consecutive quarters.
  • Central banks continued monetary easing. The Bank of Canada and European Central Bank cut rates by 25 basis points, whilst the Reserve Bank of New Zealand cut rates by 50 basis points. The US Federal Reserve kept rates at effectively 0.0%.
  • The IMF released a downward revision to their forecast on economic growth, estimating growth will contract -1.3% in 2009 before recovering in 2010.
  • Crude oil returned +1.4% on the month and finished at US $50.35(WTI)/barrel.
  • Gold finished the month 3.3% lower at US$888.00/oz.


The median returns of the Mercer Pooled Fund and Capital Stable Fund Surveys for April 2009 were +4.3% and +1.7% respectively.

Australian shares

The Australian market gained 5.7% in April to build on its March rebound and post the first back to back monthly gain since April and May 2008. The local market rose as risk appetite amongst investors improved on better-than-expected economic data.

The S&P/ASX 300 Accumulation index is still down 29% over 12 months. Small caps (+13.5%) outperformed their large (4.7%) and mid cap (8.6%) counterparts and the broader index as was the case in March. All sectors posted positive returns over the month with Consumer Discretionary (+12.0%) outperforming. Consumer Staples (+11.9%) were helped by M&A activity around Lion Nathan and ABB Grain, whilst Industrials (+8.2%) also performed strongly.

Financials lagged all other sectors (+3.7%) with the NAB and ANZ announcing weakening earnings numbers due to increases in their bad debt provisions. BHP Billiton (+4.6%) again led the positive contributors, whilst Macquarie Group (+25.0%) was well supported after better news flowed out of US banks. Newcrest Mining (-8.5%) was sold off as demand weakened for the defensive gold sector.

Overseas shares

Global share markets saw robust gains in April. The MSCI World ex Australia index returned +5.2% in AUD terms and +10.5% in local currency terms as the AUD strengthened against all major currencies. The S&P 500 index returned +9.4%, the Dow Jones returned +7.3% and the NASDAQ +12.3% in local currency terms. In Europe, the FTSE 100 (UK) returned +8.1%, the DAX (Germany) +16.8% and the CAC 40 (France) +12.6% in local currency terms. Asian markets also rallied, with the Shanghai Composite (China) posting +4.4% and the India BSE 200 index posting the biggest gain of +17.4%. The Nikkei (Japan) returned +8.9% and the Hang Seng (Hong Kong) returned +14.3%, all in local currency terms.


Property

Domestic listed property trusts (A-REITs) showed signs of stabilisation returning +6.2% over April. Over the year they are still down significantly, returning -57.2%. Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index) returned +18.7% over the month. Over 12 months global property returned -50.6%.


Fixed interest

Australian ten year bond yields rose 14 basis points to 4.75%. Domestic bond returns were flat over the month and the UBS Composite Bond Index has returned +12.8% over the past 12 months. US ten year bond yields rose 45 basis points to 3.12%.The Citigroup World Government Bond (ex Australia) Index and the Barclays Capital Global Aggregate Index returned -0.2% and +0.6% respectively over the month, on a fully hedged basis.


Currency

The Australian Dollar rallied in April. The local currency returning +5.7% against the US Dollar, +5.3% against the Yen, +2.3% against the Pound Sterling,+ 6.0% against the Euro, and +4.0% on a trade weighted basis.

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