Australian Cash & Fixed Interest — Review
Short-term interest rates have risen a little bit further, and the 90-day bank bill rate is now just over 3.0%. Bond yields remained high into November but have dropped back more recently in line with lower US bond yields, and the 10-year yield is now 3.66%, down from 4.05% a month ago. The Australian dollar has been volatile in overall trade-weighted value during the course of the year, and is currently up 1.3% for the year, thanks in part to a recent 5.6% surge against the US dollar, from 62.7US cents a month ago to 66.2 cents now.
Australian & International Property — Review
The A-REITs, like many other asset classes, got a boost from a global equity rally in the wake of good news out of the United States–the S&P / ASX200 A-REITs Index rose by 4.2% in the two days after the US data–but the sector is still well behind for the year, with a capital loss of 20.8% and an overall loss including dividends of 18.5%.
Global listed property also got a shot in the arm from the prospect of slower interest-rate hikes than previously anticipated–the FTSE EPRA-NAREIT Global index in US dollars rose by 6.75% after the news of lower-than-expected US inflation–but it is still showing large losses for the year to date. The FTSE EPRA-NAREIT Global Index in US dollars is down by 24.8% (22.4% including dividends), with particularly large US dollar losses in the eurozone (37.2% loss) and the United Kingdom (37.0% loss) stemming from a combination of weak local property prices and weakening local currencies.
Australasian Equities — Review
Local shares have had a good run in recent weeks and are up by 10.9% from their low on 3 Oct. Given that the Australian market held up better than many others during the global bear market earlier this year, the latest rally has made a big difference to the year-to-date results, and the S&P/ASX200 Index is now down for the year by only 3.9%. Including (untaxed) dividends, it has squeaked into the black with a 0.2% total return for the year. The miners (ASX300 Metals and Mining Index up 3.6%) and the banks (Financials ex the A-REITs up 0.2%) have been the strongest sectors: Ex the A-REITs (discussed earlier), the big underperformers have been information technology (down 32.1%) and consumer discretionary (down 16.2%).
International Fixed Interest — Review
Global fixed-interest investors have had little to cheer about in recent times: The Bloomberg Global Aggregate Bond Index in US dollars lost 4.7% last year and is down by a further 17.6% for the year to date. Not only have absolute numbers been very poor, but bonds have failed to deliver on their portfolio protection role in a period when equities were in sharp decline. Investors got a rare bit of good news in November, however, when America’s October inflation rate turned out to be a bit lower than feared, igniting hopes that the Fed, and perhaps other central banks, would ”pivot” towards less-aggressive tightening of monetary policy. Although the Gobal Aggregate Index is still very substantially down for the year, it has had a 5.4% rise from its low point on 21 Oct. In the US, the yield on the benchmark 10-year Treasury has dropped from 4.1% just before the inflation news to its current 3.8%.
International Equities — Review
Like bonds, equities welcomed the news that inflation was a bit better than expected in the US and that interest rates, and companies’ input costs, might not rise as quickly as previously thought: The MSCI World Index of developed markets in US dollars has gained 6.5% since the inflation news came out. But, again like bonds, the recent rally has been relatively modest in the context of the sharp falls earlier in the year, and the year-to-date performance numbers remain poor. The MSCI World Index is still down by 17.3%, with losses in US dollars across all major markets ranging from a loos of 13.3% in the UK through the S&P 500’s 16.2% drop, to the weakest of the major markets, Japan, where the Nikkei is down 18.6%, a whit worse than Germany’s loss of 18.5%. The depreciation of the Aussie dollar against the US dollar means that the MSCI World Index is down by 9.3% in local-currency terms.
Emerging markets have also enjoyed a recent post-inflation-news bounce, with the MSCI Emerging Market Index gaining 5.2% since the announcement. However, like the developed markets, the rally is still modest in the wider year-to-date context. The index has lost 24.0% so far this year, reflecting large losses in Russia and China: The Shanghai Composite Index is down by 24.2%, and Russia’s RTS Index is down by 27.4% (both in US dollars). Brazil remains the exception, where globally strong commodity prices have helped Brazil’s Bovespa Index in US dollars to a 12.0% gain for the year.
Source: Morningstar Australasia Pty Ltd
Performance periods unless otherwise stated generally refer to periods ended 11 November 2022.
