Australian Cash & Fixed Interest — Review
Short-term rates are unchanged, and the 90-day bank bill yield remains effectively zero (currently 0.03%). Bond yields have risen significantly: At 1.8%, the 10-year Commonwealth bond yield is now up by over 0.8% year to date, having started the year just below 1.0%. The Australian dollar year to date has moved a tad lower and is 0.9% down in overall trade-weighted value. In recent weeks, however, it has attracted considerable buying support and has appreciated by 3.3% month to date.
Australian & International Property — Review
The A-REITs have done well year to date. A 12.4% capital gain and a 15.4% total return including dividends means that the S&P/ASX 200 A-REIT Index has effectively matched the strong performance of the overall share market.
Overseas REITs have also delivered good results. Year to date, the FTSE EPRA/Nareit Global Index in U.S. dollars has logged a 15.5% capital gain and returned 18.7% including dividends, again broadly in line with the wider global share market. The outcome has been hugely influenced by the U.S. market, where prices rose by 32.1%: ex the U.S., the index was up by 6.4%. The U.K. market (up 20.2%) also did well, but there were very modest outcomes around the Asia-Pacific region (up 2.0%) and in the eurozone (1.5%), while emerging markets were very weak (down by 9.3%).
Australasian Equities — Review
Australian shares have followed the wider global pattern and are well ahead for the year. The S&P/ASX 200 Index is up by 12.5% and has returned 16.1% including dividends. The key contributions have come from two sectors: the banks, with financials ex A-REITs up 26.1%, and consumer discretionary shares, which have ridden the wave of pent-up consumer demand resulting from the 2020 shutdowns and are up 20.8%. The miners have struggled, especially in the wake of a collapse in the price of iron ore, and are down by 4.2%.
International Fixed Interest — Review
International bonds have had a difficult year. While an early-year rise in bond yields had reversed by August, leaving bond yields only modestly higher than where they started the year and reducing the scale of capital losses, more recently bond yields have headed back up again and are close to revisiting their earlier peaks. In the U.S., for example, the 10-year Treasury yield started off at 0.9%, peaked at 1.75% at the end of March, was back down to under 1.2% in early August, but has more recently risen all the way back up to its present 1.65%. There were similar, if smaller, cycles in other major bond markets. The upshot is that bond investors have lost ground, with capital losses outweighing very modest running yields. Year to date, the Bloomberg Global Aggregate Index in U.S. dollars has lost 4.3%, with government bonds losing 6.1% and corporate bonds 2.1%.
International Equities — Review
World share markets have regained confidence after their September sell-off. Prices bottomed out in early October, and since then, the MSCI World Index in U.S. dollars has risen by over 5% and is nearly back to its all-time peak in early September. Year to date, the index is up by 17.0%. Performance remains significantly dependent on the U.S. market, where the S&P 500 is up 20.8% and the Nasdaq up 17.3%. But even outside the States, equities have done well, and the MSCI World ex USA Index is up 10.4%. European shares have been strong, and the FTSE Eurofirst 300 Index is up 18.5% (in euros). Japan continues to be the main drag on developed market performance, with the Nikkei up by 6.6% in yen but down 3.7% in U.S. dollars.
Emerging markets, however, made little progress. The MSCI Emerging Markets Index is up by a scant 0.8% year to date, and its core BRIC constituents (Brazil, Russia, India, China) are down by 2.9%, mainly owing to weak Brazilian shares (the MSCI Brazil Index is down 17.8%). Russia has done very well, buoyed by the strong oil price, and the MSCI Russia index is up 35.9%, and India is also well ahead (the MSCI India Index is up 28.5%). How China went very much depends on which index you prefer: The Shanghai Composite is up by 5.6% in U.S. dollars, but the MSCI China is down by 11.4%. Either way, China took a back seat to the larger moves in the other BRIC markets.
Source: Morningstar Australasia Pty Ltd
Performance periods unless otherwise stated generally refer to periods ended October 20, 2021.