Stock Market Wrap-up – August 2022

Australian Cash & Fixed Interest — Review

Short-term interest rates have risen further, in line with continued monetary policy tightening by the Reserve Bank of Australia: The RBA raised the target cash rate by 0.5% on 2 Aug, taking it to 1.85%. 90-day bank bills now yield 2.3%, up 2.2% for the year to date. Bond yields have followed the international pattern and have eased back from their earlier peak: The 10-year Commonwealth bond yield reached 4.2% in mid-June but is now down to 3.4%. The Aussie dollar is higher in overall value for the year (up 4.4%) with rises against the yen (up 13.0%), the pound (up 8.8%) and the euro (up 7.9%) outweighing a 2.4% fall against the US dollar.


Australian & International Property — Review

A-REITs have substantially underperformed the wider share market. The S&P/ASX 200 A-REITs Index has lost 16.7% in capital value and registered an overall loss of 14.6% including dividends, compared with the 5.1% capital loss and 3.0% overall loss for the S&P/ASX 200.

Globally, REITs have also underperformed, but not by much. The FTSE EPRA-NAREIT Global Index in US dollars is down by 14.2% (12.4% including dividends), compared with the MSCI World’s capital loss of 12.0% (10.8% with dividends). In terms of total return in US dollars including dividend income, the Asia-Pacific region fared best (down 9.2%) and the key US market had a loss of 10.3%: overall asset class returns were held back by large losses in the eurozone (down 26.2%) and the UK (down 21.6%).


Australasian Equities — Review

Local equities have followed the global pattern and have rallied from their June lows, but the rally has not been enough to regain all the ground lost earlier in the year. The S&P/ASX 200 Index is down by 5.1% in capital value and by 3.0% including dividends. IT stocks have been worst affected: Despite a strong 23.4% rise from its 17 June low, the sector is still down by 26.8% for the year. Consumer discretionary stocks have also taken a hit, given the stresses on household budgets, and are down by 16.0%, but the more defensive consumer staples are marginally ahead for the year (up 0.8%). The financials ex the A-REITs are down by 2.5%, and the miners, reflecting the recent decline in global commodity prices, are down by 2.7%.


International Fixed Interest — Review

This year has been a game of two halves for bonds. In the US, for example, the yield on the benchmark 10-year Treasury bond rose steadily to a peak of just under 3.5% in mid-June but has fallen steadily since to its current 2.8%. The benchmark German bond followed a similar trajectory, peaking at 1.78% in June and then dropping to today’s 0.9%. The recent declines in yields and associated capital gains have improved the performance of the asset class, but the capital losses earlier in the year mean that fixed interest has still done badly for the year to date, with the Bloomberg Global Aggregate Bond Index in US dollars down by 12.3%.


International Equities — Review

World equity prices dropped steadily through to mid-June–at its low point on 16 June, the MSCI World Index of developed markets was down 23.1% in US dollars for the year–and then traded sideways till mid-July. In more recent weeks, however, share prices have regained some ground, and are up by 14.3% from their mid-June lows. Despite the recent rally, the scale of the earlier losses means that global equities are still showing large losses for the year to date, with the MSCI World Index down by 12.0%. Nearly all major markets have lost ground: In US dollars the S&P 500 is down 9.8%, the Nikkei in Japan is down 13.4%, the FTSE Eurofirst Index of European shares is down 17.9%, and the FTSE 100 Index in the UK is down 9.4%. A small depreciation of the Aussie dollar against the US dollar gave a small fillip to the outcome in local-currency terms, with the MSCI World Index in Aussie dollars down by 9.9%.

Emerging markets have fared worse than the developed markets. While the MSCI Emerging Markets Index in US dollars had a similar sized selloff in the first half of the year–it dropped by 21.9% to its low point on July 14–it has not matched the scale of the recent rally in the advanced economies, and for the year to date it is down 17.6%. The one bright spot among the core developing markets has been Brazil, which has benefited from strong commodity prices, and the Bovespa index is up 17.9% in US dollars. The other big emerging markets have recorded sizeable losses, with the worst outcome in Russia, where shares have lost roughly a third of their value (the FTSE Russia Index is down 31.4%, and the RTS index is down 36.3%).


Source: Morningstar Australasia Pty Ltd

Performance periods unless otherwise stated generally refer to periods ended 15 August 2022.