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Intergenerational Wealth Monthly Market Wrap February 2020

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Intergenerational Wealth Monthly Market Wrap for February 2020

Investor sentiment was mixed

  • Global shares were down -0.4% and were up 4.3% in hedged and unhedged terms, respectively. Emerging markets were relative underperformers (up 0.1%) driven by coronavirus concerns over the impact on China.
  • Domestically, Australian shares outperformed international markets rising 5% during January. This was driven by strong performance in the Health Care and Technology sectors.
  • The Australian dollar (AUD) fell against major currencies by -3.6% attributable to expectations of weaker Chinese growth from the coronavirus and weaker domestic growth from the bushfires.
  • Fixed income assets rallied with growth concerns from the virus outbreak in China the key driver. Another factor was the rise of geopolitical tension in the Middle East between Iran and the US. A US airstrike (in response to rising Iranian-linked attacks in Iraq) killed Iranian general Qassem Soleimani. This saw a retaliatory rocket strike from Iran on airbases with US troops and has since seen an uneasy stalemate emerge.
  • In this environment of virus fears and geopolitical tension, investors sought safe haven assets with bond prices rising (and yields falling) during January resulting in positive returns for both domestic fixed income and international fixed income.

As other risks cast a shadow on the global economy…

Globally

  • Global business surveys continue pointing to an uptick in growth with the JP Morgan Markit Composite Global PMI at a nine-month high.
  • The UK formalised its EU exit at the end of January with focus now on a formal trade agreement over the next 12 months.
  • The US and China signed a “phase one” trade deal in mid-January as expected.
  • The Iranian and virus fears prompted concern about China and global growth.

 

Locally

  • Bushfires continued into January with firmer expectations of a drag on growth during the March quarter of -0.2% according to some estimates.
  • The coronavirus outbreak and weaker Chinese demand for Australian exports is also expected to be a drag on growth.
  • The labour market has continued to hold up comparably well with the RBA staying firm on rates in early February despite these near-term risks. However, given these risks growth is likely to underperform their forecast (2.75%) for another year.

Major asset class performance

Asset classes 1 month
%
1 year
%
5 years (p.a.) %
Australian shares 5.0 24.7 9.3
Global shares (hedged) -0.4 17.9 10.0
Global shares (unhedged) 4.3 28.3 12.4
Global small companies (unhedged) 2.0 20.8 11.5
Global emerging markets (unhedged) 0.1 13.1 7.7
Global listed property (hedged) 1.3 11.6 5.8
Cash 0.1 1.4 1.9
Australian fixed income 2.3 9.1 4.3
International fixed income 1.8 8.1 4.1
Source: Bloomberg & IOOF, 31 January 2020

Indices used: Australian Shares: S&P/ASX 200 Accumulation Index, Global shares (hedged): MSCI World ex Australia Net Total Return (in AUD), Global shares (unhedged): MSCI World ex Australia Hedged AUD Net Total Return Index; Global small companies (unhedged): MSCI World Small Cap Net Total Return USD Index (in AUD); Global emerging markets (unhedged): MSCI Emerging Markets EM Net Total Return AUD Index; Global listed property (hedged): FTSE EPRA/NAREIT Developed Index Hedged in AUD Net Total Return; Cash: Bloomberg AusBond Bank Bill Index; Australian fixed income: Bloomberg AusBond Composite 0+ Yr Index; International fixed income: Bloomberg Barclays Global Aggregate Total Return Index Value Hedged AUD

Please note: Past performance is not indicative of future performance

Currency markets

Exchange rates At close on 30/11 1 month
change
%
1 year
change
%
USD/AUD 0.67 -4.7 -8.0
Euro/AUD 0.60 -3.6 -5.1
Yen/AUD 72.5 -4.9 -8.4
Trade weighted index 58.1 -3.6 -5.7
Source: Bloomberg & IOOF, 31 January 2020. All foreign exchange rates are rounded to two decimal places where appropriate.

Please note: Past performance is not indicative of future performance.

Disclaimer: This report has been prepared by the IOOF Research team for RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429. RI Advice Group Pty Ltd is a company within the IOOF group of companies consisting of IOOF Holdings Limited ABN 49 100 103 722 and its related bodies corporate. This report is current as at the date of issue but may be superseded by future publications. The information in the report may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of RI Advice Group Pty Ltd. This report may be used on the express condition that you have obtained a copy of the RI Advice Group Pty Ltd Financial Services Guide (FSG) from the website. RI Advice Group Pty Ltd and/or its associated entities, directors and/or its employees may have a material interest in, and may earn brokerage from, any securities or other financial products referred to in this report, or may provide services to the companies referred to in this report. This report is not available for distribution outside Australia and may not be passed on to any third person without the prior written consent of RI Advice Group Pty. RI Advice Group Pty and associated persons (including persons from whom information in this report is sourced) may do business or seek to do business with companies covered in its research reports. As a result, investors should be aware that the firms or other such persons may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision. This report has been prepared in good faith and with reasonable care. Neither RI Advice Group Pty nor any other person makes any representation or warranty, express or implied, as to the accuracy, reliability, reasonableness or completeness of the contents of this document (including any projections, forecasts, estimates, prospects and returns and any omissions from this document). To the maximum extent permitted by law RI Advice Group Pty, its related bodies corporate and their respective officers, employees, representatives and associates disclaim and exclude all liability for any loss or damage (whether foreseeable or not foreseeable) suffered or incurred by any person acting on any information (including any projections, forecasts, estimates, prospects and returns) provided in, or omitted from this report. General Advice Disclaimer: The information in this report is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this report, you should assess your own circumstances or seek advice from a financial adviser. Where applicable, you should obtain and consider a copy of the Product Disclosure Statement, prospectus or other disclosure material relevant to the financial product before you acquire a financial product. It is important to note that investments may go up and down and past performance is not an indicator of future performance.
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