Australian Cash & Fixed Interest — Review
Short term interest rates have continued to rise reflecting both actual and anticipated interest-rate hikes from the Reserve Bank of Australia, or RBA, and the 90-day bank bill yield is now 2.7%, up 2.6% for the year. Bond yields have followed the global pattern, peaking in June, dropping in mid-August, but then rising again in more recent weeks. The 10-year Commonwealth bond yield is back up to 3.6%. Its 2.0% rise year to date has meant capital losses for the asset class. The S&P Australia aggregate bond index is down 9.0% for the year. The Aussie dollar is 2.3% higher for the year in overall value. A significant decline of 7.3% against the U.S. dollar was more than outweighed by strength on other cross rates, notably against the yen (positive 15.8%) and the pound sterling (positive 8.7%).
Australian & International Property — Review
It has been a tough year for the A-REITs, which continue to underperform the wider share market. The S&P/ASX200 A-REITs Index is down by 22.8% in capital value and has delivered an overall loss of 20.7% including dividends, compared with the 8.3% capital loss and 4.7% overall loss for the S&P/ASX 200.
Global listed property modestly underperformed global equities as a whole: the FTSE EPRA-NAREIT Global Index in U.S. dollars has lost 22.3% (20.3% including dividends), compared with the MSCI World’s capital loss of 19.0% (17.7% with dividends). In U.S. dollars, the Asia-Pacific (negative 12.9%) and emerging markets (negative 13.1%) fared least badly, the key American market was in the middle of the bunch (negative 17.9%), while there were large losses in the eurozone (negative 40.0%) and the U.K. (negative 35.2%) due to a combo of poor underlying asset performance and weakening local currencies.
Australasian Equities — Review
Once again local equities have followed the global trend: a fall in the first half of the year, some recovery in July and the first half of August, but further losses since then. Year to date the S&P/ASX 200 Index is down by 8.3% in capital value and has returned an overall loss of 4.7% including dividends. IT stocks continue to be the weakest sector and are down by 29.2%. The cyclically exposed consumer discretionary stocks have also suffered (negative 19.6%) whereas the more defensive consumer staples have returned (negative 5.0%). The financials, excluding the A-REITs, are down by 7.0%, and the miners have done relatively well. Although global commodity prices are down from their peak, they are still high by historical standards, and the sector has outperformed shares as a whole with a modest 3.4% loss.
International Fixed Interest — Review
After dropping in July and August on hopes of inflation easing and central banks consequently under less pressure to raise interest rates, bond yields have changed tack in recent weeks and have headed higher. In the U.S., for example, the benchmark 10-year Treasury yield had dipped below 2.6% in early August and is now back up to 3.4%. The associated capital losses mean that bond market performance has been poor, and year to date the Bloomberg Global Aggregate in U.S dollars is down by 16.9%.
International Equities — Review
After a poor first half of the year, when the war in Ukraine, rising energy and other input costs, and tighter monetary policy had combined to drive equity prices sharply lower, prices recovered in July and the first half of August. The recovery has not lasted, though, prices have resumed their slide, and year to date the MSCI World Index of developed markets in U.S. dollars is down by 19.0%. All the major markets are showing significant losses In U.S. dollars for the year: S&P 500, negative 17.2%; Nikkei, negative 22.3%; Eurofirst 300, negative 23.4%. The Aussie dollar’s weakness against the U.S. dollar has cushioned some of the impact, but even so the MSCI World in Aussie dollars is down 12.6% year to date.
Emerging markets have followed a similar pattern, with prices also falling since mid-August, and the MSCI Emerging Markets Index in U.S. dollars has lost 21.9%. The only good news has come from commodity-buoyed Brazil, where the local Bovespa benchmark is up by 5.5% in reais and by 13.8% in U.S. dollars, thanks to the reais’ 7.9% appreciation against the dollar.
Source: Morningstar Australasia Pty Ltd
Performance periods unless otherwise stated generally refer to periods ended 16 September 2022.
