Investment Update 2018/19

with Funds SA and Super SA Chief Executives

 

October 2019 Overview

Key drivers of performance during the month included:

  • Global equities posted positive returns and outperformed government bonds
  • Domestic equities delivered negative returns, underperforming global equities.
  • Government bonds posted negative returns.
  • Australian dollar appreciated against most major currencies.

This environment proved to be favourable for portfolios with relatively larger allocations to growth assets such as equities.

 

Equity Markets

  • Equity market performance was positive, continuing from the previous month.

  • The US Federal Reserve cut interest rates from 2.00% to 1.75%, noting global developments for the economic outlook and muted inflation pressures. The manufacturing sector of the US economy remains weak and continues to impact business activity, while consumer confidence is starting to show signs of weakening for the first time.

  • Progress on trade talks was made between the US and China, with President Trump announcing a ‘Phase One Trade Deal’ which involves China committing to purchases of US agricultural products, the opening up of its financial sector, and increasing transparency regarding currency markets.

  • In Australia, the RBA cut interest rates from 1.00% to 0.75%, supporting employment and providing greater confidence in meeting the inflation target. This reflects the global trend of Central Banks lowering interest rates and its impact on the Australian economy. Financials had a negative month, with one bank announcing declining profits and reducing franking on dividend payments. These factors caused domestic equities to underperform global equities.

Debt Markets

  • Global government bond markets produced negative returns with long duration securities underperforming. The negative sentiment dominating markets over the past few months eased as Central banks continued to cut interest rates, creating expectations that growth will improve and geo-political pressures will ease.

  • Corporate bonds, high yield bonds and emerging market debt posted positive returns.

  • Domestic bonds underperformed global bonds given concerns around growth in the global economy.

Currency

  • The Australian dollar appreciated due to de-escalation of the trade war between the US and China.