Investment market review

22 Feb 2016

By Shadforth Financial Group

For the quarter ended 31 December 2015

Australian shares

The S&P/ASX 300 Accumulation Index delivered a 6.5 per cent gain in the December quarter.

The better performing sectors were consumer discretionary, up 13.0 per cent, health care, which rose
by 12.4 per cent and financials, which improved by 10.6 per cent. The materials sector was the worst performer, with a decline of 7.4 per cent, as commodities prices came under further downwards pressure.

graph 1

Listed property trusts

The REIT sector generated a positive return of 6.0 per cent for the December quarter.

Low bond yields remain a supportive driver for the sector as most A-REITs re-affirmed earnings forecasts for the current financial year.

graph 2

International shares

International shares delivered positive returns for the December quarter. The S&P 500 gained 7.0 per cent, the German DAX 30 soared 11.2 per cent and the Nikkei 225 was up 9.6 per cent.
The MSCI World Index, in Australian dollar terms, produced a gain of 1.8 per cent.

Global markets recovered from the sharp correction in the September quarter as China’s central bank announced further monetary policy easing. In the Eurozone, the continuation of the European Central Bank’s quantitative easing programme led to improved investor sentiment. US economic data was generally positive with the unemployment rate falling to a seven year low of 5.0 per cent combined
with the emergence of increased wages growth.

graph 3

Fixed interest

Global bond yields moved higher over the quarter. The benchmark 10 year Government bond rate in the US and Australia rose by 23 and 28 basis points to stand at 2.27 per cent and 2.89 per cent respectively.

Domestically, rising yields over the quarter reflected an increase in market expectations of an interest rate rise by the US Federal Reserve, which then happened at the Federal Reserve’s December meeting.

graph 4

Cash

The RBA left the cash rate unchanged during the December quarter at 2.0 per cent.

Stronger than expected employment data reduced the probability of another interest rate cut in the near term.

graph 5

The long view

This chart shows the risk and return of major asset classes during the last ten years. Risk is a measure of how much the performance of an asset varies over time. In other words, an asset which has a highly variable return is higher risk. The chart shown includes the impact of the GFC, during which listed property suffered a particularly steep decline. Showing a longer time period is not possible because the listed property sector index only started in 2002. Investing for the long term is not about picking the top performer over the next day, month or year — it’s about selecting a blend of assets, with different risk and return characteristics, that will, over time, generate sufficient returns to help meet your lifestyle goals. Your tolerance for risk will differ from other people’s, so it’s important to select a level of risk that you are comfortable with.

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 Daily TR Net World AUD; Listed property trusts — S&P/ASX 300 A-REIT Accumulation.

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