Investment market review 30 June 2016
25 Aug 2016
By Shadforth Financial Group
The S&P/ASX 300 Accumulation Index was up 4.0% in the June quarter.
The consumer staples sector, regarded as defensive, was the weakest performer down 3.9% as some companies including Woolworths and Wesfarmers faced greater competition and weaker margins. The strongest performing sectors were materials up 11.3%, health care up 10.1% and utilities up 7.4%.
Listed property trusts
The REIT sector generated a positive return of 9.2% for the June quarter.
The sector outperformed the general market again this quarter and whilst valuations look stretched and the sector appears expensive as ‘lower for longer’ rates will continue to support A-REITS.
International shares posted mixed results for the June quarter given the volatility associated with geopolitical events, such as, the UK’s decision to leave the EU.
The S&P 500 gained 1.9%, the German DAX 30 was down 2.9% and the Nikkei 225 was down 7.1%. The MSCI World Index in Australian dollar terms was up 4.2% in the June quarter.
International bond yields declined over the quarter.
The benchmark 10 year Government bond rates in the US and Australia fell 30 and 51 basis points to close at 1.47% and 1.98% respectively. Yields fell on the Fed’s dovish outlook on interest rate hikes as markets no longer expect a rate hike in 2016. Additionally, the UK’s decision to leave the EU spurred a flight to safety which caused further decline in yields.
The RBA lowered the cash rate by 25bps to 1.75% in the June quarter.
Inflation was an important catalyst in the decision because it is well below the RBA’s medium term target zone of 2-3%. The weakness in domestic price pressures is attributed to low wage growth, softer rental and housing construction markets and declines in inputs to the cost of business. It is expected that the RBA will maintain its monetary easing bias due to declining terms of trade and weak domestic price pressure. In early August, the RBA reduced the cash rate to 1.5%.
The long view
This chart displays the highest and lowest 12-month returns of the major asset classes since June 1996.*
As you can see, cash provides stability and security, having never generated a negative return over a 12-month period. The trade-off for this stability and lower risk is that cash will be unlikely to match the higher returns generated by other asset classes.
Source: Morningstar. Indices used are: Cash — AusBond Bank Bill; Fixed Interest — AusBond Composite 0+ year; Australian shares — S&P/ASX 300 Accumulation; International shares — MSCI World Accumulation Index (AUD); Listed property trusts — S&P/ASX 300 A-REIT Accumulation.
* The listed property index is only available from June 2001.