Market Updates

Australian Cash

The Reserve Bank of Australia (RBA) lifted the cash rate by o.25% to 4.00% in March. The RBA noted that it was more appropriate to restore interest rates “closer to average’.

At its most recent meeting in early April, the RBA took a further step in this process, increasing rates another 0.25% to 4.25%.

Australian Fixed Interest

The UBSA Composite Bond All Maturities Index fell 0.6% in March. Government bond yields rose, in line with the global trend and firmer domestic economic fundamentals. The Australian economy recorded growth of 0.9% in the fourth quarter of 2009, taking the annual growth rate to 2.7%. Further interest rate rises are expected by the market over 2010, with the market pricing in a 5% cash rate by year end.

Shorter term bond yields rose slightly more than the long end due to a reassessment of the RBA outlook. 3-year yields increased by 0.46% in the month, while 10-year yields rose 0.34% to 5.78%.

Global Fixed Interest

The Barclays Capital Global Aggregate index (hedged $A) was up 0.6% in March, despite global bond yields rising in most developed markets. As the graph in the next column shows US 10-year yields reached their highest point since mid 2009 (up to 3.38%, from 3.61% in February). Signs of firming US economic activity, the impact of sovereign risk concerns in Europe and rating agencies’ continued warning about unsustainable fiscal deficits all put upward pressure on US yields.

Credit spreads continued to tighten in global markets. The continued improvement in credit markets occurred despite the poor performance in peripheral sovereign debt markets.

Australian Listed Property

The S&P/ASX 300 A-REIT Index was flat in March, underperforming the broader share market by 5.7%.

Over the month, Industrial (8.6%) was the best performing sector followed by Retail (0.2%). Commercial (-2.1%) was the worst performer.

The top performing trusts for the month were Goodman Group (9.2%) and ING Industrial Trust (6.6%). Goodman Group benefited from increased confidence that management could deliver on planned developments outlined in its earlier results commentary. ING Industrial Trust recovered, benefiting from favourable sentiment toward the Industrial REIT sector.

The worst performing trusts were Abacus Property Group (-4.8%) and Commonwealth Property Office Fund (-4.7%), as investor enthusiasm towards both stocks dampened.

Global Listed Property

The UBS Global Property Investors Index (hedged, $A) rose 7.1% in March, with the USA/Canada the top performing region (9.5%) followed by Continental Europe (6.7%). The worst performing regions were Australia (0.0%) and Singapore (1.7%).  The graph on the next page shows the returns of the various regions over the month and year to 31 March 2010 (in local currency).

In the US, commercial sales have strengthened. In New York, commercial property sales tripled in value in the first quarter compared to a year earlier as sellers took advantage of rising demand. Fundamentals also started to stabilise. Approximately $US 3.3 billion of transactions priced at $US 10 million or more were closed, almost matching the $3.5 billion sold during the whole of last year.

Investors returned to the New York market, encouraged by signs of growing demand after the US recession and job losses at financial companies sent rents down 24% from their 2008 peak. Approximately 529,000 square meters of office space was leased in the first quarter, 84% more than a year earlier.

Australian Shares

Double digit gains in mining and energy shares drove the Australian market 5.7% higher in March (S&P/ASX 300 Accumulation Index). Booming spot iron ore prices and moves to quarterly rather than yearly contracts enabling more frequent price negotiation excited the market. There was also a re-emergence of positive sentiment toward coal seam gas, with Shell/PetroChina raising their takeover offer for Arrow.

In line with what was a global theme, most cyclical sectors and stocks outperformed, particularly Billabong, Bradken, Fairfax, Flight Centre, Kathmandu, Pacific Brands and Ten. The expectations were Harvey Norman, Downer and Hardie (US housing).

Most lower-beta (less market driven) sectors lagged, especially consumer staples, insurance (due to recent storms), REITs, telecommunications and rural stocks, the latter not helped by Nufarm’s poor result and another share sell-down plus a profit warning from AWB. Health names kept pace with the market, although Sigma fell 48% after disclosing a severely deteriorating operating environment and major write downs to recent acquisitions.

International Shares

Global share markets enjoyed a relief rally in March due to easing fears over the Greek debt crisis and positive US economic data. The MSCI World ex Australia index (hedged, $A) rose 6.7%.

A government bond issue and other measures announced in Greece had a positive impact. Improved US consumer spending, manufacturing, payrolls and retail sales data saw investor confidence return to the market.  The US Federal Reserve’s decision to keep interest rates at very low levels, plus the passing of the Obama health care reforms, were also encouraging.

M&A activity and a strong investor preference globally for cyclical stocks were favourable for international share markets. Other high-beta sectors (industrials, IT, Financials) outpaced defensive parts of the market (Consumer Staples, Healthcare, Telecommunications, Utilities).

Most Asian markets also rose strongly, especially Japan (9.5%) where the encouraging US economic data and a fall in the Yen raised hopes of a brighter outlook for Japanese exporters. However China’s Shanghai Composite (1.9%) underperformed on worrying inflation data and fears of more government intervention that will slow surging economic growth.

Global Emerging Markets

Emerging markets outperformed broader developed markets in March, with the MSCI EM index up 5.4% ($A).  India 6.7% and Brazil (5.8%) rose strongly China recorded muted gains rising 1.9% as expectations of further policy tightening gained pace.

The good performance seen in emerging markets was a reflection of the confidence in the US economy. Renewed US job growth and increased US home sales bolstered optimism that the global economy is rebounding, which was positive for the commodity driven Brazilian market.

The US, Brazil’s second largest trade partner, added the most jobs in three years in March. Service Industries expanded in March at the fastest pace in more than three years, a sign the US recovery is extending beyond manufacturing.

In China, data showed that manufacturing also expanded in March and was evidence for the central bank that the nation’s economic rebound had been “further cemented”.

investment markets data

table 1 – investment market performance to 31 March 2010

table 2 – breakdown of Australian & global fixed interest market performance to 31 March 2010

table 3 – performance of major Australia share market indices to 31 March 2010

table 4 – breakdown of Australian share market performance to 31 March 2010*

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

top 5 performing Australian shares in March 2010*

bottom 5 performing Australian shares in March 2010*

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

table 5 – breakdown of international share market performance by country to 31 March  2010

Note: all returns are calculated in local currencies

table 6 – breakdown of international shares market performance by sector to 31 March 2010*

*Based on MSCI world Indices (reclassified in accordance with the Global Industry Classification Standard “GICS”).
Note: all returns are calculated in local currencies

economic indicators

Australian Cash

The Reserve Bank of Australia (RBA) surprised markets by keeping rates on hold at 3.75% in February, against the backdrop of unsettled global conditions. But this proved a temporary pause.

At its meeting in early March, the RBA raised the cash rate by 0.25% to 4.0%.  They noted that economic conditions in 2009 were stronger than expected, with a range of data suggesting growth in the Australian economy. The accompanying statement maintained the RBA’s bias towards tightening.  

Australian Fixed Interest

The UBSA Composite Bond All Maturities Index rose 0.5% in February. Yields on 10 Year government bonds rose to 5.49% (up from 5.38% in January). Sovereign risk indicators rose sharply as concerns escalated over Greece’s budget position and default risk. This dented risk appetite and caused some flight to higher quality markets.

Australia’s economy grew 0.9% in the fourth quarter, boosted by $22 billion in government spending on infrastructure.  Further, a rebound in consumer confidence, greater business optimism, surging house prices, a drop in unemployment, and signs of an investment boom in resources projects were forecast by the RBA to underpin sustained growth in Australia’s economy.

Gross operating profits jumped 2.2% in the fourth quarter from the previous quarter. Sales of newly built dwellings surged 9.5% in January, reinforcing RBA expectations for stronger growth in 2010.

Global Fixed Interest

The Barclays Capital Global Aggregate index rose 0.8% in February. Global bond yields were little changed during the month. Nonetheless, sovereign risk continued to dominate the headlines.  As Chart 1 shows, Europe sovereign debt remained a concern.

Governments in the EU responded to the situation in Greece by developing a possible $US34 billion rescue plan. As the month drew to a close, this led to some stability in fragile global market sentiment.

With global fixed income investors pre-occupied by European sovereign concerns, corporate bond issuance slowed significantly in February.

The US Federal Reserve unexpectedly increased the discount rate from 0.50% to 0.75%. The discount rate is the rate the Fed charges on emergency cash loans to banks. The Fed statement cited a continued improvement in financial market conditions but emphasised that this was a step toward normalisation of the Fed’s emergency lending facilities but did not signal any change in the outlook for the economy or monetary policy. Yields on 10 year Treasuries rose 3.61% in February (up from 3.59% in January).

Australian Listed Property

The S&P/ASX 300 A-REIT Index was up 1.4% in February, underperforming the broader share market by 0.6%. February was a busy month for A-REITs, with all reporting first half 2010 results.

The Diversified (4.8%) and Leaders (1.7%) were the best performers, while the Retail sector lagged (-0.8%).

The top performing trusts for the month were Charter Hall Group (11.2%)  Stockland Trust Group (8.8%) and Abacus Property Group (7.7%). Charter Hall announced the acquisition of the majority of Macquarie’s Real estate Management platform. Stockland reported a strong H1 2010 result, as did Abacus Property. 

The worst performing trusts were Ardent Leisure Group (-10.8%) and ING Industrial Trust (-5.6%). 

Global Listed Property

The UBS Global Property Investors Index increased 3.3% in February with the USA/Canada the top performing region (5.6%) followed by Australia (1.4%). The worst performing regions were Continental Europe (-0.8%) and the UK (0.5%).

The Federal Deposit Insurance Corp (FDIC) announced it is disposing of seized assets including real estate and property developments that previously belonged to failed banks. This move will put these assets back into private hands. More than 160 US lenders have collapsed since the start of 2009. This announcement was viewed as a sign of a more stable environment.

In addition, US housing prices fell 1.2% in the fourth quarter 2009 from a year earlier – the smallest loss in two years – as a federal tax credit for homebuyers boosted demand and helped to stabilise the housing market. Sales of existing homes jumped 14% in the fourth quarter from the previous quarter, and the inventory of homes on the market dropped to its lowest level in over three years.

Australian Shares

The S&P/ASX 300 Accumulation Index rose 2.0% in February. Company reporting season was the main diver of stock performance. Returns at the stock level varied very widely within most sectors.

A handful of large names (ANZ, CSL, Wesfarmers, Westpac, Woolworths) were rewarded for results that positively surprised the market. Mining stocks (especially BHP and RIO) also contributed, reversing some recent underperformance, due to rising commodity prices. Other names rewarded following results announcements were Ansell, ASX, IAG, Macquarie Airports, News Corp, Onesteel, Ramsay, Resmed, Stockland, United and Virgin.

The other big story domestically was the positive trading updates issued by ANZ< NAB and Westpac.  Good first half results from Commonwealth Bank and Westpac confirmed positive conditions for bank earnings.

However some companies (including Alumina, Billabong, BlueScope, Downer, Fairfax, Primary Health, Qantas, QBE, Santos, Telstra, Toll and Westfield) suffered, following results or outlook guidance that fell short of bullish broker expectations.  

International Shares

February saw uncertain trading in global equity markets due to mixed signals on the US economy and an escalation of the Greek debt crisis. The MSCI World ex Australia index (hedged, $A) rose 2.2% mainly due to $A gains.  

US shares finished higher due to positive housing and manufacturing data, plus some strong quarterly company results from Exxon, Home Depot and UPS. Market confidence in a continuing low Fed Funds rate was bolstered by a benign inflation result, notwithstanding the first increase in the bank discount rate. However negative employment and confidence data caused some concern, as did the worsening situation in Greece, although confidence that the Euro zone would structure a workable stabilisation plan limited the negative fallout.

Mining stocks outperformed as commodity prices rose, despite a further tightening of bank lending in China. Defensives (Health, Telecommunications, Utilities) lagged.  
European equities were under pressure (France -0.8%, Germany -0.2 %,) weighed down by the fiscal problems in Greece and Spain, and moderate economic data. The UK (3.2%) did much better due to its exposure to mining stocks and a good result from Barclays, which lifted the banking sector.

Global Emerging Markets

Emerging markets were down 0.4% in February (MSCI EM index ($A). Investors were concerned that China’s economy may lose momentum, undermining the global recovery, as the government reined in earlier stimulus measures to counter inflation and asset-bubble risks.

Partial data suggests that China’s manufacturing grew at a slower pace in February. The Purchasing Manager’s Index (PMI) slid to a one year low of 52. This figure compares with a record low 38.8 in November 2008, when recessions in the US, Europe and Japan sent export orders plunging.

investment markets data

table 1 –investment market performance to 28 February 2010

table 2 – breakdown of Australian & global fixed interest market performance to 28 February 2010

table 3 – performance of major Australia share market indices to 28 February 2010

table 4 – breakdown of Australian share market performance to 28 February 2010*

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

top 5 performing Australian shares in February 2010*

bottom 5 performing Australian shares in February 2010*

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

table 5 – breakdown of international share market performance by country to 28 February 2010

Note: all returns are calculated in local currencies

table 6 – breakdown of international shares market performance by sector to 28 February 2010*

*Based on MSCI world Indices (reclassified in accordance with the Global Industry Classification Standard “GICS”).
 
Note: all returns are calculated in local currencies

economic indicators