Australian Cash & Fixed Interest — Review
Short-term interest rates have risen a bit further, and the 90-day bank bill rate is now 2.9%, a rise of 2.8% for the year. Bond yields have been rising since early August: The 10-year Commonwealth bond yield is now 3.9%, up 2.25% for the year. The Aussie dollar is lower, largely because of its 12.9% year-to-date decline against the U.S. dollar, but it has risen against some other major currencies (notably the yen, where it is up by 12.6%), and in overall trade-weighted terms it is only slightly down (negative 1.3%) for the year.
Australian & International Property — Review
Although the wider Australian share market has held up relatively well by international standards, the A-REIT sector has behaved in line with the very weak performance of global listed property. The S&P / ASX200 A-REITs Index is down by 28.0% in capital value and has returned an overall loss of 25.8% including dividends, significantly worse than the S&P / ASX 200’s 8.9% loss and 5.3% overall loss.
Global listed property has underperformed global equities as a whole: The FTSE EPRA-NAREIT Global Index in U.S. dollars is down by 31.2% (29.1% including dividends), compared with the MSCI World’s loss of 23.9% (22.6% with dividends). In U.S. dollar terms, there were some remarkably large setbacks for eurozone REITs (an overall loss including dividends of 48.3% [and U.K. REITs’ overall loss of 46.4%]) as sharply weaker local currencies amplified the impact of lower local REIT prices. The key U.S. market, which accounts for over half of the index, had an overall loss of 27.6%.
Australasian Equities — Review
Like their overseas counterparts, Australian shares have also sold off but less so than many other equity markets, and the S&P/ASX200 Index has shed 8.9% in capital value and recorded an overall loss of 5.3% including dividends. It has helped that the relatively large financials sector—five of the top 10 stocks by market cap are banks—has held up well, and the financials ex the A-REITs are down by only 2.9%. The miners have also been relatively strong, and the S&P/ASX300 Metals and Mining Index is down by only 4.7%. At the other end of the spectrum, IT shares have suffered from the global wariness towards the sector and are down by 31.9%, while the cyclically exposed consumer discretionary shares are down by 22.0%.
International Fixed Interest — Review
International fixed interest has continued to fare very poorly as bond yields have continued to rise in several major markets, always excluding Japan, which has clung to its policy of keeping bond yields unusually low (its 10-year government-bond yield is only 0.26%). In the United States, for example, the 10-year Treasury yield has risen to 4%, a 2.5% increase for the year, and in the U.K., the misguided Truss / Kwarteng minibudget saw the 10-year yield hit 4.5% amid scenes of bond market stress, and although it is now back down to just under 4%, the yield is still up by 3.0% for the year. Eurozone yields are also higher: The German 10-year yield is 2.3%, up 2.5% for the year (it started off in negative yield territory). Overall, significant yield rises have translated into heavy capital losses, and for the year to date, the Bloomberg Global Aggregate in U.S. dollars is down by 20.9%.
International Equities — Review
Although there have been intermittent rallies, overall, global equities have continued to fall this year, and to date the MSCI World Index is down by 23.9% in U.S. dollars. All of the major markets are down by substantial amounts in U.S. dollar terms, ranging at the low end from the 21.6% fall in the U.K.’s FTSE100 Index and the 22.0% fall in the U.S. S&P500, through to, at the high end, the 31.1% fall in the U.S. Nasdaq and the 30.3% fall in Germany’s DAX. A benefit of the lower Aussie dollar, however, is that it has helped to shield local investors in overseas shares from some of the impact; in AUD terms, the MSCI World is down by 12.7%.
Emerging markets have been even weaker, and in the MSCI Emerging Markets Index is down 28.6% in U.S. dollars. Apart from some small petroeconomies, which have been beneficiaries of high world oil prices, the only other good news has been the Brazilian market, which has benefited from strong commodity prices and which helped the local Bovespa benchmark index to a 17.4% gain in U.S. dollars. The other key emerging markets—China, India, and Russia—all registered USD losses: India’s Sensex is off by 8.4%, the Shanghai Composite by 25.3%, and Russia’s RTS by 34.8%.
Source: Morningstar Australasia Pty Ltd
Performance periods unless otherwise stated generally refer to periods ended 18 October 2022.
