Australian Cash & Fixed Interest — Review
Short-term rates have inched up, with the 90-day bank bill yield now 0.16%, up from close to zero (0.07%) at the start of the year. Long-term interest rates have risen more strongly, and the 10-year Commonwealth bond yield is now 2.4%, up 0.75% for the year to date. The Aussie dollar is up by 1.1% for the year to date in overall trade-weighted value. It has been steady in terms of its headline U.S. dollar rate, at just under 72.6 U.S. cents, but has gained against European currencies, which have weakened since the Russian invasion of Ukraine.
Australian & International Property — Review
The A-REITs had been one of the weaker-performing sectors even before the latest round of Ukraine-linked losses, and it has continued to underperform. For the year to date, the S&P / ASX200 A-REITs index has made a capital loss of 10.5% and an overall loss of 10.0% including dividends, compared with the wider share market’s 4.0% capital loss and 2.6% total return.
Overseas, REITs have also sold off, but, although the absolute numbers have been weak, there is some comfort in the fact that the REITs fared less badly than global shares overall. The FTSE EPRA/NAREIT Global Index in U.S. dollars including dividends returned a loss of 8.4%, rather better than the 12.2% loss for the MSCI World index. All the major regions fared much the same, with returns ranging from a loss of 6.5% in the Asia-Pacific region through to a loss of 9.6% in the U.K., while the key U.S. market lost 9.3%.
Australasian Equities — Review
Australian shares, while not immune to the global weak equity tone of the year to date, have fared relatively well by international standards. The S&P / ASX200 index is down by a relatively modest 4.0% (2.6% including the value of dividends). On the plus side, the miners have ridden the global commodity price surge and are up by 6.2%, and the utilities, a useful defensive option in the current uncertainties, are up by 6.1%. The large banking sector has also held up reasonably well, with only a small 1.0% loss. On the down side, IT has shared in the global tech selloff and is down 24.0%, and consumer discretionary (down 13.4%) and healthcare (down 12.4%) have also been notably weak.
International Fixed Interest — Review
The year 2022 has been a challenging one for fixed interest: For the year to date, the Bloomberg Global Aggregate in U.S. dollars has returned a loss of 6.0% (a 5.5% loss on global government bonds, and an 8.7% loss on global corporate bonds). Investors looking to boost returns by opting for higher-yield options like junk bonds or emerging-markets debt have also been disappointed: Global ‘high yield’ (low credit quality) bonds have lost 7.8%, while emerging-markets debt has lost 10.8%. Making a duration bet—aiming at the higher yields at the longer end of the yield curve—has also misfired: In the U.S. market, for example, the Long Treasury index (maturities of over 20 years) is down by 10.5% as yields have risen, with the 30-year Treasury yield increasing from 1.9% at the start of the year to 2.5% now.
International Equities — Review
World shares had been weakening in any event, even before the invasion of Ukraine on Feb. 24. Over that period, the MSCI World index had dropped by 7.8%. The invasion made things worse, with a further 5.2% fall since then, for a cumulative year-to-date loss of 12.5%. In the U.S., the S&P500 is down 12.4%; in Japan, the Nikkei is down 12.3%; and in Europe, the FTSE Eurofirst300 is down 9.8%.
Measuring the performance of the emerging markets post-invasion has become very difficult: Russian shares, while almost certainly worth substantially less than before, have not traded since Feb. 25. MSCI said that it “received feedback from a large number of global market participants, including asset owners, asset managers, broker dealers, and exchanges with an overwhelming majority confirming that the Russian equity market is currently uninvestable and that Russian securities should be removed from the MSCI Emerging Markets Indexes”. They subsequently have been. The ongoing Emerging Markets index is down 14.4% in U.S. dollars. The Brazilian market has done very well on the back of booming commodity prices (MSCI Brazil up 15.9%), but the overall result has been pegged back by weaker performance in China (MSCI China down 25.4%) and India (MSCI India down 6.7%).
Source: Morningstar Australasia Pty Ltd
Performance periods unless otherwise stated generally refer to periods ended March, 14, 2022.