Stock Market Wrap-up – July 2022

Australian Cash & Fixed Interest — Review

Monetary policy has been tightened further: as expected, on 5 July the Reserve Bank of Australia raised the target cash rate by a further 0.5% to 1.35%. The 90-day bank bill yield is now 2.23%, up by over 2% since the start of the year. Bond yields have risen, reflecting both higher inflation and the RBA’s tightening cycle, and the 10-year Commonwealth bond yield is 3.6%, up 1.9% for the year. The Aussie dollar is up by 2.6% in overall value: Gains against most other currencies (notably a 14.3% rise against the yen and 7.2% against the pound sterling) have outweighed the Aussie’s 4.8% decline against the globally strong US dollar.


Australian & International Property — Review

A-REITs for the year to date have significantly underperformed the broader equity market. The S&P/ASX200 A-REITs Index has dropped by 20.2% in capital value and delivered an overall loss of 18.3% including dividends, compared with the 8.7% capital loss and 6.8% overall loss for the S&P/ASX 200 Index.

Overseas, REITs have also underperformed, but by a smaller margin. The FTSE EPRA-NAREIT Global Index in US dollars has registered an overall loss (including dividends) of 18.2% compared with the MSCI World Index’s equivalent loss of 16.5%. The key US market lost 17.6%: Among the other major regions, Asia-Pacific was relatively resilient with a 12.2% loss, while the eurozone fared worst with a 32.0% loss, a mix of asset price falls and a lower currency (the euro dropped by 10.1% against the US dollar).


Australasian Equities — Review

The global equity bear market has not spared Australia, and local shares have also sold off: For the year to date, the S&P/ASX 200 Index is down by 8.7% in capital value and by 6.8% including dividend income. Tech has been sharply sold off worldwide, and unsurprisingly the local IT sector has been the weakest of the major sectors and is down 28.1%. The darkening cyclical outlook has favoured defensive consumer staples (down only 0.9%) over the more cyclically sensitive consumer discretionary (down 16.7%). The financials ex A-REITs are also lower and are down 6.4%. The resources sector had help up well earlier in the year, but a sag in commodity prices in recent weeks–the Bloomberg Commodity Price Index dropped by some 17% between early June and early July–means that the miners are now also in the red for the year, and the S&P/ASX 300 Index of metals and mining is down by 11.1%.


International Fixed Interest — Review

A market backdrop of unexpectedly high global inflation and of widespread and vigorous central bank monetary policy tightening has created difficult conditions for bonds, and for the year to date the Bloomberg Global Aggregate Bond Index in US dollars is down by 14.0%. Global government bonds have lost 15.3%, and global corporate bonds have lost 10.2%.

Higher yielding subsectors have also performed poorly, with global high yield (lower credit quality) down by 15.6% and emerging-markets debt down by 17.5%.


International Equities — Review

The year-to-date outcomes for global equity markets make for sorry reading: the MSCI World Index of developed economy sharemarkets is down by 17.6% in US dollars. All major markets shared in the setback, with, in US dollar terms, American shares down by 16.1% (S&P 500), European shares by 20.6% (FTSE Eurofirst 300 Index), and Japanese shares by 19.1% (Nikkei). The only major sector clearly ahead for the year is oil and gas, while there have been especially large losses at the techier end of the asset class (for example, software and computer services down by 28.8%).

Emerging markets have been a bit weaker again, and the MSCI Emerging Markets Index in US dollars is down by 19.6%. In US dollars, among the key emerging, economies Brazil, supported by strong commodity prices, has done least badly (Bovespa down 4.3%), but there were larger losses in India (Sensex down 10.7%), China (Shanghai Composite Index down 15.6%), and Russia (RTS down 28.4%). Some countries closer to the Ukraine conflict fared notably badly (for example, MSCI Hungary Index down 41.1%, MSCI Poland Index down 37.2%).


Source: Morningstar Australasia Pty Ltd

Performance periods unless otherwise stated generally refer to periods ended 22 July 2022.