Australian Cash & Fixed Interest — Review
Short-term interest rates have remained steady, with the 90-day bank bill yield continuing to trade just above zero (currently 0.04%). Bond yields have mirrored the U.S. market: Yields rose in the first three months of the year and have stayed at the new higher levels, and the 10-year Commonwealth bond yield is 1.7%, a 0.7% increase for the year to date. The Australian dollar is 0.9 higher in overall trade-weighted value, with gains on most cross rates (especially against the yen) outweighing declines against the pound and the renminbi.
Australian & International Property — Review
The S&P/ASX 200 A-REITs Index has eked out a small 1.1% capital gain for the year to date and returned 1.8% including dividends, underperforming the wider share market’s 6.5% capital gain and 8.0% total return.
Global listed property has done well: The FTSE EPRA/NAREIT Global Index in U.S. dollars is up by 9.2% in capital value, exactly matching the rise in the MSCI World Index of the wider global share market, and has delivered a total return of 10.4%. The outcome was heavily dependent on the U.S. REIT market, which returned 15.7%: Ex the U.S., the return from the index was 5.1%. Performance has lined up with success in managing COVID-19: Countries like the U.S. and the U.K. (12.8% return) have substantially outperformed areas like the eurozone (down 0.1%) or emerging markets (0.1%).
Australasian Equities — Review
Australian shares have had a good start to the year: The S&P/ASX 200 Index up is by 6.5% in capital value and by 8.0% including the value of dividends. The financials (ex the A-REITs) have led the way, with a 16.4% gain, and high commodity prices in the recovering world economy have helped the miners to a 10.3% gain. Consumer discretionary stocks have also done well and are up 9.7%. The IT sector has suffered from the global sell-off of tech stocks and is down 119.1%, though is still up 30.2% on a year ago.
International Fixed Interest — Review
Bond yields in the U.S. rose in the first three months of the year and have broadly stayed at these new higher levels in recent weeks. The yield on the 10-year Treasury note is 1.64%, still close to the recent peak of 1.75% reached at the end of March. Bond yields in other major markets have also risen, though by less than in the U.S.: One interesting consequence is that government-bond yields in the eurozone, which had largely been negative at the start of this year, are all now positive, with the sole exception of Germany, where the 10-year yield is still marginally negative (negative 0.1%). With running yields still very low, income has not compensated for capital loss, and the Bloomberg Barclays Global Aggregate Bond Index in U.S. dollars for the year to date is down by 3.1%.
International Equities — Review
World shares hit a bump in the road in May, largely in reaction to the news in the U.S. that annual inflation had risen to 4.2%: Investors worried that higher inflation would mean higher interest rates down the track, which would adversely impact on the valuation of equities. Tech shares proved particularly vulnerable, for various reasons: Higher discount rates have a greater impact on innovative companies where profits still lie some way down the track; sectoral rotation has favoured more cyclical sectors that will do well from the unexpectedly strong recovery from COVID-19; and the previous extended bull run for tech shares may have largely run its course in any event.
At time of writing, world shares were recovering from the inflation-linked sell-off, and for the year to date, the MSCI World Index is currently up 9.2% in U.S. dollars. The American market continues to do better than most – ex the U.S., the MSCI World is up by a smaller 7.7% – with the S&P 500, up 11.1%. The tech-heavy Nasdaq, however, is now only up 4.2% this year after the latest sell-off, but the small gain needs to be seen in the context of the previous strong performance: The Nasdaq is still just over 50% up on a year ago. European markets have also performed well, with the FTSE Eurofirst 300 Index up 10.9% in euros. Japan has been relatively weak, with the Nikkei up for year to date only 2.3% in yen and down 3.0% in U.S. dollars.
Emerging markets have lagged the developed markets, and the MSCI Emerging Markets Index is up by only 1.3% in U.S. dollars. The key BRIC markets (Brazil, Russia, India, China) have lost ground and are down by 1.7%. Russia has been the best of them: The MSCI Russia index is up 9.4%. Rather strangely, India, despite the COVID-19 catastrophe unfolding there, is also up for the year, with the MSCI India Index up 5.9%. The overall BRIC loss came from lower equity prices in China and Brazil
Source: Morningstar Australasia Pty Ltd
Performance periods unless otherwise stated generally refer to periods ended May 17, 2021
