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Investment Update for 2017/18

with Funds SA Chief Investment Officer - Richard Friend

 

September 2018 Overview

Key drivers of performance during the month included:

  • Global government bonds underperformed equities.
  • Australian equities underperformed most of their global counterparts.
  • Emerging market bonds outperformed developed markets.

This environment proved to be favourable for portfolios with relatively larger allocations to Japanese equities. 

 
Key factors impacting financial market performance during the month were:

Equity Markets

  • Equity market performance was mixed.

  • The Reserve Bank of Australia left interest rates on hold again, while the United States Federal Reserve raised interest rates to 2.25%.

  • Australian equities generated a negative return, underperforming most global counterparts. The healthcare sector in Australia posted negative returns due to the announcement of a royal commission into the aged care sector. However, the energy and material sectors posted strong positive returns due to increases in commodity and oil prices.

  • Trade tensions continued between the United States and the rest of the world, with more Trump initiated tariffs and retaliatory tariffs from China, though a last minute deal was reached for the North American Free Trade Agreement between the US and Canada, as they resolved key issues.

  • The global economic backdrop remained supportive with ongoing solid economic growth.
  • Japanese equities outperformed most of their global counterparts, as employment opportunities reached the highest levels in decades and banks continued to see strong loans growth reflecting a stronger economy. The depreciation of the Yen and the US Federal Reserve increasing interest rates were both supportive for Japanese equities.

Debt Markets

  • Global government bond markets were negative and underperformed equities in a month where the economic data showed signs of further improvement and interest rate policy expectations continued to factor in further tightening in the US.
  • Non-government bond performance was mixed. Highly-rated corporates posted a negative return while emerging market debt and high yield bonds posted positive returns over the period.

Currency

  • The US dollar rose slightly over the period, as trade tariffs and expectations for the US Federal Reserve to raise interest rates continued to support its attractiveness.
  • The Australian dollar also rose slightly due to increases in commodity prices.