Monthly Market Snapshot – May 2017

May was a favourable month for overseas equity markets, particularly for Emerging Markets, but a negative month for Australian equities. Despite various political turmoil, low market volatility on the back of monetary policy normalization and gradual fiscal stimulus has and will continue to drive the global economy.

In the US, the Fed has taken a more gradual approach and left the Funds Rate unchanged. It believes that strong economic updates and falling unemployment at 4.3%, the lowest in 16 years, are supportive of growth and has regarded the slowdown of Q1 GDP to 1.2% p.a. driven by soft consumer spending and inventory investment as “transitory”. The Fed also continues to support the case of central bank’s reduction in the size of its balance sheet as a sign of its growing confidence in the strength of the economic recovery. Equities produced robust earnings growth despite the political antics on the key elements of Trump’s fiscal stimulus policy platform, particularly relating to corporate tax cuts and the infrastructure proposals.

In Europe, market optimism was reflected in an increase in the Euro currency as a result of Emmanuel Macron’s victory in the French elections as he promised greater economic reforms in areas including fiscal policy. The European Central Bank (ECB) is focused on scaling back its asset purchase program as the economic outlook in Eurozone continues to gradually recover and inflation starts to pick up. Sterling continues to be influenced by political concerns in the UK, particularly after Theresa May’s Conservative Party lost its majority in Parliament. Negotiation terms for Brexit appear to be more challenging going forward with increasing political concerns and its impact on the UK economy.

In May, China’s growth remains patchy, led by industrial production output and urban fixed asset investment below market expectations as the China Bank Regulatory Commission imposed tighter regulations to curb the impact of rising shadow-banking activities. China’s measures to restrict credit and deleverage have also driven most of the commodity prices lower as shown in the sell-off in equity, bonds and commodity markets.

Domestically, GDP posted the weakest year-on- year growth of 1.7% since the GFC, dragged by softening dwelling investment and fall in resources exports impacted by Cyclone Debbie. Equities also suffered their largest monthly decline since January 2016, driven by a –9.2% correction in Banks following the announcement of the Bank Levy in the Federal Budget. The Reserve Bank of Australia (RBA) has left the cash rate unchanged again at 1.5%, maintaining its expectations that Australia’s economy will grow to above 3% over the next few years.

 

AUSTRALIAN EQUITIES

Australian equities fell in May, closing the month down by 2.7%, while the Financial sector fell by 7.7% balanced by the Resources sector.

Source: Frontier Advisors; Monthly Market Snapshot (May 2017)

INTERNATIONAL EQUITIES ($A)

The hedged MSCI World Index gained 1.8% in May, while the unhedged index gained 2.8%, as the Australian dollar weakened marginally over the month. Emerging market equities posted strong returns, closing the month up by 3.4% in Australian terms.

Source: Frontier Advisors; Monthly Market Snapshot (May 2017)

INTERNATIONAL EQUITIES (LOCAL CURRENCIES)

Major equity markets gained over the month, with the exception of China which fell by 1.2% and Europe by 0.1%. All major markets have posted positive returns for the current financial year to date.

Source: Frontier Advisors; Monthly Market Snapshot (May 2017)

FIXED INCOME

Both Australian and global bonds had a positive month with the domestic composite index rising 1.2% and global composite index rising 0.6%.

Source: Frontier Advisors; Monthly Market Snapshot (May 2017)

AUSTRALIAN DOLLAR AGAINST MAJOR CURRENCIES

The Australian dollar (AUD) depreciated against all major foreign currencies in May, particularly against Euro where it decreased by 3.1% but has appreciated marginally against the Sterling by 0.5%

For the financial year to date, the AUD has recorded gains against all GBP and JPY, although it is relatively flat against the USD and EUR.

Source: Frontier Advisors; Monthly Market Snapshot (May 2017)

PROPERTY

In May, Australian listed property declined by 1.0% while Global listed property increased by 0.5%.

Source: Frontier Advisors; Monthly Market Snapshot (May 2017)

Download this month’s snapshot

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IMPORTANT INFORMATION

The information in this article is general information only and does not take into account your objectives, financial situation or needs. Before making a financial decision, please assess the appropriateness of the information to your individual circumstances and consider seeking independent advice from a licensed or appropriately authorised financial advisor. Past performance is not a reliable indicator of future performance.

The information contained in this document has been sourced from Frontier Advisors Pty Ltd, AFSL 241266; “Monthly Market Snapshot” (May 2017). The information contained in “Monthly Market Snapshot” is intended as general commentary and should not be regarded as financial, legal or other advice. Should you require specific advice on the topics or areas discussed please contact NGS Super directly or an appropriate advisor.

Information provided in this blog may have changed since the time of writing. You should confirm the information is current before relying on it.

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