Australian Cash & Fixed Interest — Review
The Reserve Bank of Australia, or RBA, at its Dec. 7 policy meeting kept the target cash rate at 0.1%, and consequently, short-term rates have continued at very low levels, with 90-day bank bills yielding only 0.06%. Bond yields have also headed higher: The 10-year Commonwealth bond yield may have eased back from its recent high (2.09% on Oct. 29) but at 1.6% is still well up on where it started the year (just below 1.0%). The Aussie dollar has weakened in recent weeks and for the year to date is down by 5.4% in overall value. Part of the weakness reflects the global strength of the U.S. dollar: The Aussie dollar was worth 75 U.S. cents at the start of November but has fallen to 71 cents now.
Australian & International Property — Review
The A-REITs have had a very good year. The S&P / ASX200 A-REITs Index has made a capital gain of 22.1% and has delivered a total return including dividends of 25.4%, significantly outperforming the 16.1% total return from the S&P / ASX 200.
Overseas REITs have also done well. For the year to date, the FTSE EPRA/NAREIT Global Index in U.S. dollars has delivered a 14.4% capital gain and has returned 18.0% including dividends, close to the 18.7% total return from the MSCI World Index. Performance has, however, been even more dependent on the U.S. market than the overall share market has been: Ex the U.S., the index returned only 1.8%. The U.K. was the only other major market to do well, with a 20.7% return; there were losses in the Asia-Pacific (negative 2.6%), in the eurozone (negative 5.5%), and the emerging markets (negative 14.0%).
Australasian Equities — Review
Australian shares have performed well, and the S&P / ASX200 Index is up by 12.0% and has returned 16.1% including dividends. The three big sectoral winners were the A-REITs (up 22.1% as noted earlier), consumer discretionary (up 20.8% on expectations of post-COVID-19 pent-up spending), and the financials ex the A-REITs (up 18.5% after the banks look like managing their way through the pandemic better than originally feared). The miners look to be finishing 2021 with a small gain: The S&P / ASX300 Metals and Mining Index is up by 2.1%.
International Fixed Interest — Review
It has been a difficult year for fixed interest. Global inflation has unexpectedly surged, investors are none too sure whether the rise in inflation is temporary (and ongoing low bond yields might consequently be tolerable) or more permanent (in which case investors will hold out for higher yields), and, in general, recovery from COVID-19, despite the emergence of the omicron variant, has reduced the attractiveness of bonds as a safe-haven option. Bond yields have risen virtually everywhere (though minimally in Japan), inflicting capital losses, and for the year to date, the Bloomberg Barclays Global Aggregate Index in U.S. dollars is down by 4.4%, with government bonds down by 6.0% and corporate bonds down by 3.0%.
International Equities — Review
It has been a bumpy year, with the omicron variant’s impact on share prices in late November and early December the latest in a series of twists and turns, but barring any further last-minute setback, it looks as if world shares will have delivered strong returns in 2021. For the year to date, the MSCI World Index of developed markets in U.S. dollars is up by 16.7%. As was the case all year, the performance has been heavily dependent on the U.S. market: Ex the U.S., where the S&P 500 is up 23.4%, prices have risen by a significantly more modest 6.5%. Exchange-rate movements contributed to the U.S. market’s dominance, with the U.S. dollar strengthening against the yen, euro, and pound and appreciating in overall value by 6.3% (on The Wall Street Journal’s index).
Emerging markets, however, have missed out, and for the year to date, the MSCI Emerging Markets Index is down 5.4% in U.S. dollars. The core BRIC markets (Brazil, Russia, India, China) were weaker again and dropped by 12.8%, heavily influenced by the particularly weak Brazilian market (MSCI Brazil down 23.0%). India was the best performer, with the MSCI India Index up 22.2% and the traditional Sensex index up 16.5% in U.S. dollars.
Source: Morningstar Australasia Pty Ltd
Performance periods unless otherwise stated generally refer to periods ended December 14, 2021.