18 March 2013
Renewed concerns in Europe
Over the month of March, investor confidence was shaken by events in Cyprus and the possible implications for the broader European region. The plan for Cyprus to impose a tax on bank deposits quickly raised concerns that a banking crisis could eventuate and that the proposed tax could become a ‘template’ policy solution for other debt-troubled European nations.
China’s ability to manufacture a slowdown in its property market also affected market sentiment. This had a trickle-down effect on commodities which generally struggled over the month. The US S&P500 index continued its recent good run and reached new all-time highs by month end. This was an extraordinary result considering the sentiment in relation to Europe and China, as well as the automatic US budget cuts which will remove US$85 billion from US agency budgets between March and October.
In Japan, local share markets continued to rally on the back of strong US data combined with increasing optimism that Japan would continue to pursue aggressive monetary easing.
Global shares (hedged) were up 3.1% over the month. With the $A strengthening against all major currencies, unhedged returns were slightly weaker at 0.7%. The major markets of the US (3.8%), the UK (1.2%) and Japan (7.0%) achieved good returns over the month, while the Euro region generally posted lower returns largely due to concerns about Cyprus. Emerging markets underperformed developed markets due to weaker performance from China, South Korea and Russia. Globally, Materials was the notable underperforming sector while Energy, Industrials, Financials and IT sectors also posted negative returns over the month. Strong performances were recorded by the Health Care, Consumer Discretionary, Consumer Staples and Telecommunications sectors.
The Australian share market had a weak month down 2.3%, its first negative month in ten months. Resources were once again the main drag on performance while the Materials sector (-9.6%) lagged the broader market significantly. Other sectors that recorded negative results over the month were Energy, Industrials, Consumer Staples, Health Care and Telecoms. The best-performing sector was Consumer Discretionary while Financials, IT, Utilities were all flat.
The Australian Property Trusts Index had a weak month returning -2.6%, underperforming both global listed property (hedged) and the broader Australian equity market. Despite this, the listed property sector has delivered a strong one year return of 30%.
Recent events in Cyprus emphasise that the market recovery is still vulnerable to shocks and rapid changes in sentiment. For the time being, investor sentiment appears to be in two camps: one believes that the recent market rally isn’t supported by earnings growth, while the other believes that there is a ‘weight of money’ moving from bonds to shares which will continue to support share prices.
|Market performance to March 20131||Performance (%)|
|Australian Shares (S&P/ASX 300 Accumulation)||-2.3||8.0|
|International Shares (MSCI World ex‐Australia) unhedged||0.7||7.4|
|International Shares (MSCI World ex‐Australia) hedged||3.1||10.6|
|Unlisted Property (Mercer Unlisted Property Funds Index (pre-tax)*||0.5||1.5|
|Listed Property Trusts (S&P/ASX 300 Property Trusts Accumulation)||-2.6||5.3|
|Australian Bonds (UBS Composite Index)||-0.2||0.2|
|Global Bonds (Barclays Global Aggregate (Hedged))||0.8||1.3|
|Cash (UBS Bank Bills)||0.3||0.7|
|Appreciation of $A against $US||1.8||0.4|
* estimate as at 8 April 2013
1. The table shows the performance of investment markets, not the performance of First State Super’s investment options. The returns for First State Super investment options are under Investments. Past performance is not a reliable indicator of future performance.
This information has been supplied by JANA, First State Super’s investment advisers, on behalf of FSS Trustee Corporation ABN 11 118 202 672 AFSL 293340, trustee of the First State Superannuation Scheme ABN 53 226 460 365.