Investment Update for 2017/18
with Funds SA Chief Investment Officer - Richard Friend
October 2018 Overview
Key drivers of performance during the month included:
• Global government bonds outperformed equities.
• Australian equities outperformed most of their global counterparts.
• Emerging market bonds underperformed developed markets.
This environment proved to be favourable for portfolios with relatively larger allocations to unlisted assets.
Key factors impacting financial market performance during the month were:
Equity market performance was mostly negative as volatility returned in October.
The Reserve Bank of Australia again left interest rates on hold, while the US Federal Reserve kept interest rates on hold after the increase in September.
- Domestic equities generated a negative return, but were able to outperform most of their global counterparts.
- Political tensions remained elevated around the globe. The US and China’s standoff over tariffs continued, while in Europe, Brexit negotiations between the United Kingdom and Europe continued. Notwithstanding these issues, the global economic backdrop remained supportive for equity markets.
- Brazilian equities outperformed most of their global counterparts posting strong positive returns, as market participants reacted positively to the election of Jair Bolsonaro as the Brazilian President.
Global government bond markets were flat, with the economic environment showing signs of further improvement, and investor expectations of monetary policy continuing to factor in further interest rate increases in the US.
Non-government bonds produced negative performance, as the excess returns that investors demand for bearing the additional risk expanded meaningfully.
The US dollar continued to rise over the period, as trade tariffs and expectations for the United States Federal Reserve to raise interest rates continued to support its attractiveness.
The Australian dollar fell due to the increasing interest rate differentials between Australia and the US.