Stock Market Wrap-up – May 2022

Australian Cash & Fixed Interest — Review

Short-term interest rates have started to move higher as the Reserve Bank of Australia, or RBA, has started to tighten monetary policy. On May 3 the RBA raised the target cash rate by 0.25% to 0.35%, and started to wind down the stock of bonds it had bought when it was aiming to keep bond yields low. The 90-day bank bill rate is now just shy of 1%, up 0.9% since the start of the year. Bond yields have risen significantly, and the 10-year Commonwealth bond yield is now 3.4%, up 1.7% year to date. The Aussie dollar has been a mixed bag. Its headline rate has weakened, largely because of a global strengthening in the value of the U.S. dollar (up 8.0% in overall value year to date, on The Wall Street Journal index). At 69 U.S. cents, the Aussie is down 4.9% in terms of its headline rate. But strength against other currencies (notably a 6.5% appreciation against the yen and a 5.0% appreciation against the pound sterling) has offset the weakness in U.S. dollar terms, and year to date the Aussie is up by 1.1% in overall trade-weighted value.


Australian & International Property — Review

The A-REITs have significantly underperformed the wider Australian sharemarket, and the S&P/ASX200 A-REITs Index has delivered a capital loss of 16.9% and an overall loss of 16.4% including dividends, compared with the ASX 200’s capital loss of 5.0% and overall loss of 3.3%.

Overseas REITs have also done badly in absolute terms but have fared slightly better than overseas equities as a whole. The FTSE EPRA/NAREIT Global Index in U.S. dollars including dividends has returned a loss of 14.5%, slightly better than the equivalent 15.7% loss for the MSCI World Index.


Australasian Equities — Review

Australian shares are down year to date but have been relatively resilient compared with overseas markets, with the S&P/ASX 200 Index down by a relatively modest 5.0% (3.3% including dividend income). Performance has been helped by the miners (the S&P/ASX 300 index of metals and mining is marginally up, by 0.4%), the stability of the banks (the Financials excluding the A-REITs are effectively unchanged), and the defensive appeal of consumer staples (marginal loss of 0.7%). The big losses have been in IT (negative 32.4%), echoing the global weakness of tech stocks, and in consumer discretionary (negative 17.6%).


International Fixed Interest — Review

Conditions have remained very difficult for investors in bonds, as bond yields have continued to rise, inflicting further capital losses. For example, in the key U.S. market, the benchmark 10-year Treasury yield is now just over 2.9% and is up 1.4% for the year. As a result, the Bloomberg Global Aggregate in U.S. dollars year to date has returned an overall loss of 12.2%, with global government bonds losing 12.6% and global corporate debt losing 9.9%. Investors hoping to gain some protection in higher-yielding subsectors have also lost out. Global high yield (low credit quality) has lost 12.3%, while emerging markets debt has lost 14.6%.


International Equities — Review

A temporary equity market recovery in March after the initial Ukraine selloff was followed by a renewed selloff through April and into May, and year to date the MSCI World Index of developed economy sharemarkets is now down by 16.4% in U.S. dollars. The weakness has been widespread. In the U.S., the S&P 500 is down by 15.6% while the tech-heavy Nasdaq is down by 24.5%; Germany’s DAX is down by 11.7%; European shares are more generally down by 10.2% (FTSE Eurofirst 300 Index); and Japan’s Nikkei by 8.2%, aggravated for overseas investors by a lower yen (the Aussie dollar has appreciated against the yen by 6.5%). Only the U.K., the listing domicile of some major global energy and commodity firms that have done well as resource prices have boomed, is ahead for the year. But even then, the FTSE 100 Index has managed only a marginal 0.5% increase in sterling terms.

Emerging markets have been weaker again, with the MSCI Emerging Markets Index in U.S. dollars now down by 18.5%. Brazil remains the only major country in emerging markets to repay investors’ attention, thanks to commodity revenues. The MSCI Brazil is up by 10.3% and the Bovespa by 12.3% (both in U.S. dollars). The other key economies have recorded large losses, headed, unsurprisingly, by Russia, where shares are down by some 30% in U.S. dollars (RTS Index is negative 29.0%, and FTSE Russia is negative 31.3%).


Source: Morningstar Australasia Pty Ltd

Performance periods unless otherwise stated generally refer to periods ended May, 13, 2022.