Australian Cash & Fixed Interest — Review
The Reserve Bank of Australia, or RBA, has continued to tighten monetary policy, raising the cash rate target by 0.5% to 0.85% on June 7. Short-term interest rates are consequently well up from where they started the year, with the 90-day bank bill rate 1.4% higher at 1.5%. Bond yields have reflected both the surge in inflation and the RBA policy tightening, and the 10-year Commonwealth bond yield is now 2.0% higher for the year, at just under 3.7%. The Aussie dollar is lower on its headline rate against the globally strong U.S. dollar—at USD 71.2 cents it is down 1.9% against the greenback. In overall trade-weighted terms, however, it is ahead for the year and is up 3.6%, with a big contribution coming from its 14.0% appreciation against the Japanese yen.
Australian & International Property — Review
The A-REITs have been hit very hard by the events of 2022, and the S&P/ASX 200 A-REITs Index year to date has lost 25.2% in capital value and recorded an overall loss of 24.7%, including dividends. The sector has underperformed the wider share market by a wide margin, with the S&P/ASX 200 down in capital value by 10.2%.
Overseas, the REITs and equities as a whole have sold off by similar amounts, with the FTSE EPRA-NAREIT Global Index in U.S. dollars returning an overall loss (including dividends) of 21.0%, compared with the MSCI World’s equivalent loss of 20.4%.
Australasian Equities — Review
Australian shares have lost ground but not to the same extent as major markets overseas. The S&P/ASX 200 Index is down by 10.2% and by 8.4% including dividend income. The IT sector has been worst hit (down 37.2%) in the midst of a global selloff of tech stocks, and the prospect of more difficult times ahead has also been a strong headwind for consumer discretionary stocks (down 24.4%). Investors have also started to question the outlook for the banks as the housing market slows, and the financials, excluding the A-REITs, are down by 12.2%. The relatively defensive consumer staples sector has held up a bit better than most (down by 8.6%). On the plus side, the resources sector has benefited from the global strength of commodity prices, and the S&P/ASX 300 Index of metals and mining is up by 3.6%.
International Fixed Interest — Review
Bonds have fared very badly in an environment of surging inflation and tightening of monetary policy. Year to date the Bloomberg Global Aggregate in U.S. dollars has lost 15.0%, with global government bonds down 15.7% and global corporate bonds down 12.5%. Higher-yielding subsectors have also been swept away in the current, with global “high-yield” (low credit quality) down by 14.9% and emerging-markets debt down by 16.4%. Capital losses have been magnified for investors taking on relatively long duration risk. Investors in “long” U.S. Treasuries (maturities of 20 years plus) have suffered a 24.2% year-to-date loss.
International Equities — Review
World shares have had a torrid time. Year to date the MSCI World Index of developed economy sharemarkets is down by 21.2%. While there is no formal rhyme or reason to it, some commentators like to call declines of 20% or more a “bear market,” and this year certainly qualifies. All the major markets have made large losses, with (for example) the S&P 500 in the U.S. down by 21.3% and the tech-oriented Nasdaq down by 30.9%. By sector, going by the USD FTSE Global sectoral indexes, the only major categories ahead for the year are oil and gas companies (oil and gas producers are up 31.6%), mining (up 9.5%), tobacco (up 6.0%), and fixed-line telecoms (up 1.6%). On the other hand, IT has been heavily battered—technology, negative 27.8%; software and computer services, negative 29.2%; tech hardware and equipment, negative 26.1%—as have the media (negative 35.3%), and areas cyclically exposed to weakening consumer spending (consumer services, negative 25.7%; general retailers, negative 27.1%; cars, negative 25.7%).
Emerging markets have also been beaten up, and the MSCI Emerging Markets Index in U.S. dollars is down by 17.5%. Brazil has benefited from strong world commodity prices, with the MSCI Brazil up 3.8% and the BOVESPA Index up 6.6% (both in USD). Also, India’s Sensex is down 13.6%, and China’s Shanghai Composite is down 15.9% (again all in USD). Russia has also been weak, with a USD decline of 20.5%, going by the RTS Index, or of 33.0%, if you follow the FTSE Russia measure.
Source: Morningstar Australasia Pty Ltd
Performance periods unless otherwise stated generally refer to periods ended June, 13, 2022.