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Cash

The Reserve Bank of Australia (RBA) left the cash rate unchanged at 3% in June. However, minutes from the June meeting confirmed that a clear easing bias remains, the RBA suggested the inflation outlook could allow room for further cuts if needed to support demand.

Australian bonds

The UBSA Composite Bond All Maturities Index fell 0.6% in June An improvement in credit markets helped moderate weakness in the government sector, where concerns over the supply of government bonds (domestically and globally) continued to constrain markets.

Bond yields rose at the short end of the yield curve as  markets began to anticipate that the next movement in cash rates would be a tightening in response to better than expected economic news (despite contrary comments from the RBA).

Long end rates moved higher, weighed down by concern over the supply of Commonwealth and State bonds. These concerns were fuelled by Federal and State budgets, which were characterised by a marked increase in spending as part of expansionary fiscal measures. The rise in longer term rates can be seen in the chart below.

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Australian banks issued non government guaranteed debt. This was an indication of an improvement in investor sentiment and credit market conditions. As investor risk
appetite increased, spreads on credit to commonwealth bonds narrowed.

International bond

The Barclays Capital Global Aggregate was up 1.1% in June. Global bond yields spent the first half of June continuing their upward trend. However, by mid month the trend had reversed, with bond yields falling back. This followed strong demand at US Treasury auction, more mixed economic data and uncertainty on the timing and size of recovery.

Yields on US 10 year treasury bonds rose to 3.54%, up from 3.46% in May.  As the graph below shows, the US government has sharply increased the size of its deficit in 2009, causing unprecedented levels of government

bond issues in the US. This has also led to speculation that higher yields would be demanded to compensate for additional inflation risk and potentially increased competition for capital.

Global investment-grade credit spreads fell further in June, and are now at levels prevailing prior to the collapse of Lehman Brothers…

Bank spreads also narrowed following the release of stress test results for the 19 largest US banks, which showed that much less extra capital was required than markets had estimated. Subsequent capital raisings were heavily subscribed, corresponding with some improvement in capital market liquidity conditions.

Australian listed property securities

The S&P/ASX 300 Property Accumulation Index rose 4.9% in June, outperforming the broader share market by 0.9%.  The sector return was -42.1% for the financial year.

Large capital raisings continued to feature as part of the sector’s balance sheet restructuring efforts to bring down gearing levels. This was notable amongst GPT Group and Mirvac Group.

Over the month, Industrial (34.8%) outperformed the listed property trust index, after two months of underperformance. Retail (2.7%) was the worst performer.

Top performers in June were Goodman Group (48.0%), and Macquarie CountryWide Trust (35.8%). Goodman Group was the beneficiary of renewed confidence following reports that China Investment Corporation had committed to being a strategic partner.  Macquarie CountryWide Trust benefited from the return of risk appetite to the sector and some re-financing that improved their liquidity.

The worst performing trusts were GPT Group (-3.9%), and ING Office Trust (-12.3%), both of whom announced capital raisings in June.

Global real estate securities

The UBS Global Property Investors Index fell 0.5% in June, with markets consolidating following strong gains in the preceding months. There were highly divergent performances across the various regions. Japan (7.7%) and Australia (4.6%) the best performers. The US (-2.7%) and Europe (-3.1%) were the worst performers.

Asian markets generally outperformed, particularly Hong Kong, helped by firmer signs of growth in China. China’s share market index has rallied this year, and new bank loans have increased in China, a portion of which has flowed into share and real estate markets. Data released in June showed the nation’s property sales jumped 45.3% in the five months to May.

Elsewhere in Asia, property trusts began to see the light, with some REITs having revealed plans for the new projects in anticipation of an upturn. Indiabulls, India’s third largest listed property developer, announced plans to launch several residential projects this year. Transaction volumes in China, Hong Kong and Singapore are close to levels seen during the bull market of 2007. Office rents in the region have also showed signs of stabilising after falling sharply in the fourth quarter of 2008.

Australian shares

The Australian outperformed increasingly hesitant global markets, with the S&P 300 Accumulation Index up 4.0%. Improved domestic economic conditions provided some support, particularly evidence of an improvement in the housing sector and a strong flow-through impact of government spending measures on consumer demand.

A mixed performance was seen across sectors. Defensive stocks outperformed, and Energy and Materials were weaker. Banks and some recently lagging defensives (healthcare, consumer staples, telecommunications) contributed positively, as did REITs, Financials (Challenger, Suncorp) and infrastructure (Asciano, Macquarie Airports, Macquarie Infrastructure Group). Infrastructure was buoyed by Asciano’s capital raising and a decision by a Macquarie satellite (Macquarie Leisure Trust) to break away from Macquarie.  

Most domestic Retail (helped by a profit upgrade from David Jones) and Media stocks also rose strongly. BHP and RIO Tinto lagged despite their new iron ore joint venture. AGL, Amcor, Crown, IAG and Tabcorp also lagged. Amongst cyclical stocks, Mining and equipment supplier Emeco (an unexpected CEO exit), James Hardie (a lukewarm response to their domicile change), OneSteel and PaperlinX also underperformed.

International shares

Markets lost momentum in June, following the rally from March lows. The MSCI World index (hedged, $A) was flat. For unhedged investors, the rise in $A detracted from performance, producing a -1.6% return.

Sentiment responded to fluctuating economy and company news which failed to establish a clear trend. Market bulls were encouraged by better than expected manufacturing and jobless claims data.

The US market was unchanged in June. Amongst the positives, a successful capital raising helped market heavyweight Bank of America, as did a profit upgrade from Oracle (helping technology stocks to advance). However market bears seized on weak housing data and bearish comments from Ben Bernanke on the US budget deficit. Profit warnings from Aetna and Valero dragged down the insurance and energy sectors respectively. GM finally filed for chapter 11 bankruptcy but this was not a major shock to the market.

European stocks fared worse than the US (UK -3.8%, Germany -2.7%, France -4.2%). The German market was hit by poor data. UK mining shares were lacklustre despite M&A (BHP/RIO and Anglo/Vale). Asian markets were broadly positive, especially China (12.4%) and Japan (4.6%) following positive economic data.

Global emerging markets

Emerging markets were down 2.3% in June (MSCI EM index - $A). Oil-dependent countries (Brazil, Middle East, Venezuela) fell as oil declined from an 8 month high, paring the biggest quarterly gain on record for emerging markets.

China continued its strong run in June, buoyed by domestic consumption. The Purchasing Managers Index (PMI) was in an expansionary phase in June. Other positive data included car sales (up 21.2% to May 2009) and a 61% increase in the share market index (for the first half of the year).

Investment markets data

table 1 – investment market performance to 30 June 2009

table 2 – breakdown of Australia and international fixed interest market performance to 30 June 2009

table 3 – performance of major Australia share market indices to 30 June 2009

table 4 – breakdown of Australian share market performance to 30 June 2009*

*Based on S&P/ASX 300 Accum Indices (reclassified in accordance with the Global Industry Classification Standard “GICS”).

top 5 performing Australian shares in June 2009*

bottom 5 performing Australian shares in June 2009*

*Based on the universe S&P/ASX 100 Index.

table 5 – breakdown of international share market performance by country to 30 June 2009

table 6 – breakdown of international shares market performance by sector to 30 June 2009*

economic indicators