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Intergenerational Wealth Monthly Market Wrap September 2019

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Intergenerational Wealth Monthly Market Wrap for September 2019

Risk assets faltered 

  • The rally from December faltered slightly with most equity markets down for the month.
  • Global shares were down 2% and up 0.3% in hedged and unhedged terms, respectively.
  • Domestically, Australian shares underperformed international markets this month with -2.4% performance in August.
  • Australian health care stocks continued to perform strongly with CSL (ASX: CSL) seeing its FY19 results favourably received as the company guided to earnings growth by another 7% to 10% for FY20. This followed 17% growth in FY19 to $US1.91bn in line with market expectations and even allowed for the short-term hit to profitability of switching to a direct distribution model.
  • The Australian dollar (AUD) fell against major currencies following another bout of trade-induced fears for global growth. The prospect of a weaker Chinese economy due to harsher tariffs has contributed to speculation against the Australian dollar as has stronger iron ore supply which reduces resource earnings (a key support for the AUD).
  • Fixed income and bond substitutes such as listed property rose in August both domestically and globally. Unhedged assets outperformed hedged equivalents in line with the depreciation of the AUD.
  • International fixed income continued to rise on the prospect of additional central bank easing and demand for safe haven assets. The prospect of falling interest rates makes existing bonds more attractive so much so that almost 30% of the Barclays Global Aggregate is now offering a negative yield (due to investors bidding prices higher). Weaker US PMI results have stoked fears of weaker global growth as well, driving bond yields lower.

With mixed economic news…

Globally

  • US-China trade tensions flared up with new US tariff threats realised in early September with more waiting in the wings.
  • These fears have abated somewhat with the restart of trade negotiations between China and the US in October.
  • Global business surveys pointed to weaker manufacturing growth with the Markit Global Manufacturing PMI remaining in contractionary territory.

Locally

  • The Reserve Bank of Australia (RBA) remained on hold in early September and reiterated the need for a government response to slowing economic growth.
  • The Australian economy grew in line with expectations at 0.5% for the quarter and 1.4% for the year to June 2019.
  • This slower rate of growth was driven by weakness in both consumer and business spending as well as a decline in inventories.
  • The outlook for growth may see some room for an uptick from these levels given still strong resource demand as well as the full impact of the RBA rate cuts and government tax refunds to be felt in the September quarter. That being said we continue to favour defensive exposures for the Australian economy as weak wage growth and household indebtedness act as constraints to a material uptick in consumption.
  • The unemployment rate remained at 5.2% while employment growth surprised on the upside. Leading business indicators such as the NAB Business Survey continue to suggest weaker labour markets ahead.
  • We saw an uptick in sentiment towards property markets continue with some appreciation in Sydney and Melbourne. A resumption of stronger credit growth has also appeared with 4.2% growth in the number of commitments for owner-occupiers (consensus: 1.5%). This may see financial stability concerns raised for future RBA rate decisions.

Major asset class performance

Asset classes 1 month
%
1 year
%
5 years (p.a.) %
Australian shares -2.4      9.0 7.9
Global shares (hedged) -2.0      0.5 8.6
Global shares (unhedged)      0.3 7.6 13.5
Global small companies (unhedged) -1.2 -2.4 12.5
Global emerging markets (unhedged) -2.7 2.7 7.2
Global listed property (hedged) 2.0 8.6 7.4
Cash 0.1 1.8 2.0
Australian fixed income 1.5 11.2 5.3
International fixed income      2.2 10.0 5.1
Source: Bloomberg & IOOF, 31 August 2019 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

Please note: Past performance is not indicative of future performance

Currency markets

Exchange rates At close on 31/8 1 month
change
%
1 year
change
%
USD/AUD 0.67 -1.6 -6.3
Euro/AUD 0.61  -0.8 -1.0
Yen/AUD 71.6      -3.8  -10.3
Trade weighted index 58.9      -1.0 -5.3
Source: Bloomberg & IOOF, 31 August 2019. 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 is prepared by IOOF Research for RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429.  RI Advice Group Pty Ltd is part of the IOOF group of companies consisting of IOOF Holdings Limited ABN 49 100 103 722 and its related bodies corporate (“IOOF”). This report is for financial adviser use only – it is not to be distributed to clients. 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 is current as at the date of issue but may be superseded by future publications. 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 document 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 Ltd 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 Ltd, IOOF 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 report (including any projections, forecasts, estimates, prospects and returns and any omissions from this document).   It is important to note that investments may go up and down and past performance is not an indicator of future performance. To the maximum extent permitted by law RI Advice Group Pty Ltd, 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. For information regarding any potential conflicts of interest and analyst holdings; IOOF Research Team’s coverage criteria, methodology and spread of ratings; and summary information about the qualifications and experience of the IOOF Research Team please visit https://www.ioof.com.au/adviser/investment_funds/ioof_advice_research_process

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