Monthly market update March '19
Global equity markets continued their strong start to the year in March. Despite being spooked by the inversion of the US yield curve – a common recession predictor – global markets delivered a positive return for the month despite a late sell off. Concerns remained around the lack of inflation growth, and the state of the global economy more broadly which resulted in a fall in bond yields.
US equities were positive in March with the S&P 500 Composite rising by 1.9% (in local currency terms). The Federal Reserve met during the month and, as expected, left interest rates at the target range of 2.25% to 2.50%. In what has been a significant change in sentiment from statements last year, the Fed has flagged that it is unlikely to raise rates in 2019. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) remained at 62 in March, whilst the Markit US Manufacturing PMI fell to 52.4, from 53 in February.
March saw the passing of the previously specified date for the UK’s leaving of the Eurozone, with Prime Minister Theresa May making a third unsuccessful attempt to get her agreement through British parliament and even offering to resign to try and get the deal through. With her efforts falling short, the UK and the EU have now agreed to a short-term Brexit extension until 22 May if the UK parliament supports May’s deal or 12 April (to provide indicative next steps) if May’s new deal is rejected. Whilst May remains determined to avoid a “no-deal” Brexit, the ultimate outcome remains highly uncertain. The Markit Eurozone Manufacturing PMI declined again, falling to 47.5 in March from 49.3 the previous month, and the Eurozone PMI Composite Output Index fell to 51.3 from 51.9 in the previous month. European equities, as measured by the Euro Stoxx 50 Index, rose by 1.6% (in local currency terms). The MSCI World ex Australia Index rose by 1.6% (in local currency terms), whilst the equivalent unhedged AUD index rose by 1.5%.
The Chinese stock market, as measured by the Shanghai Composite Index, rose by 5.1% in March (in local currency terms), continuing its strong performance for the year thus far (having risen by 23.9% over the March quarter). The Chinese RMB was broadly flat against the USD, with the latter buying 6.71 CNY at the end of March. The Chinese manufacturing PMI, as measured by the Caixin Manufacturing PMI, unexpectedly rose to 50.8 in March, from 49.9 in February. Emerging markets equities were also positive in March, with the MSCI Emerging Markets Index increasing by 1.4% over the course of the month (in local currency terms).
The Australian share market, as measured by the S&P/ASX 300 Accumulation Index, rose by 0.7% during the month. Most individual sector returns were positive, with Telecoms (3.8%), Consumer Staples (3.7%) and Materials (3.4%) the best performing sectors, whilst Healthcare (1.3%), Financials (-2.6%), and Energy (-4.1%) were the worst performing sectors. The Australian listed property market, as measured by the S&P/ASX 300 AREIT Accumulation Index, rose by 6.0% in March, outperforming the S&P/ASX 300 Accumulation Index by 5.3%. This index has been a strong outperformer in recent times rising 25.9% over the past 12 months. The Reserve Bank of Australia met in early April and again left the cash rate unchanged at 1.5%, although at least one cut is expected before the year’s end.
The Australian 10-year Government bond yield continued its decline in March, falling 33bps to 1.78%, with concerns about economic growth and low inflation expectations having an impact on investor sentiment. There has been a meaningful shift down in the Australian yield curve over the past six months, with the 5 year yield falling 81bps and the 10 year yield falling 89bps since 30 September 2018. All other major global bond yields also fell over the month, with the US 10-year Government bond yield falling by 31bps to 2.41% and the UK 10-year Government bond yield falling by 30bps to 1.00%. The 10-year German Government bond yield fell into negative territory for the first time since 2016, falling by 25bps, to -0.07%.
The Australian dollar ended the month flat against the USD, finishing at 70.96 US cents from 70.94 US cents the previous month. The AUD depreciated slightly against the currencies of major trading partners, with the Trade Weighted Index closing the month at 60.5, down from 60.7 at the end of February.
Update provided by Willis Towers Watson, legalsuper’s investment asset consultant. This investment commentary does not constitute advice. All investment figures quoted relate to before-tax performance of the relevant industry benchmark.
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