July2010
Market Commentary
Markets rally as fears subside
It was a very bumpy ride in the markets in July. However a reversal in investor sentiment saw markets finish the month in positive territory. This was driven by earnings surprises in the US, as well as the long awaited bank stress test results from Europe, which delivered results ahead of expectation.
The ASX300 returned 4.5% in July, as investors returned to the cyclical stocks that they had fled from towards the end of the financial year. Industrial and Financial stocks performed strongly. Listed Property Trusts returned 1.1%, with the sector performing very strongly at the start of July, before giving some of the gains back at the end of the month.
Global share markets in local currency terms ended the month up 5.9%. An appreciation in the Australian dollar saw unhedged investors return 0.8% for the month. At a regional level, European countries experienced a relief rally in response to the bank stress testing results, with the Greek stock market posting the greatest increase, rising by 22.9% in the month of July. Emerging markets continued to outperform developed markets. At a sector level, Financials, Telecommunications, and Materials stocks performed well, whilst the defensive Healthcare and Consumer Staples sectors posted negative returns.
World bond markets were broadly flat for July. Government bond yields in Australia rose slightly, while bond yields in other developed markets experienced a small decline. Credit markets performed well, as the concerns about global growth and sovereign debt subsided. Given lower than expected inflation results and low credit growth, the Reserve Bank of Australia kept cash rates on hold during July.
Whilst July is a positive month, it was also a volatile month as markets are still very reactive to short term announcements. This will remain so in the foreseeable future. In addition, the size and timing of the recovery in the developed markets and whether the emerging markets are strong enough to drive global economic growth in the absence of developed world growth is still a big unknown.
|
July 2010 |
Performance (income and capital gain or loss)%
|
|
|
Month |
3 Months |
|
Australian Shares (S&P/ASX 300 Accumulation) |
4.5 |
-6.0 |
|
International Shares (MSCI World ex-Aust) |
0.8 |
-2.2 |
|
International Shares (MSCI World ex-Aust)hedged |
5.9 |
-5.2 |
|
Unlisted property* |
1.0 |
2.1 |
|
Listed Property Trusts |
1.1 |
-4.2 |
|
Global Bonds (Barclays Global Aggregate (Hedged)) |
1.1 |
3.6 |
|
Australian Bonds (UBS Composite Index) |
0.3 |
3.3 |
|
Cash (UBS Bank Bill) |
0.4 |
1.2 |
|
Appreciation of $A against $US |
7.2 |
-2.8 |
* Returns are lagged by one month.
Source: Jana Investment Advisers Pty Ltd, July2010.