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Investment Update

with Funds SA Chief Investment Officer - Richard Friend

 

May 2018 Overview

Key drivers of performance during the month included:

  • Trade and political tensions rose, causing low risk assets such as government bonds to perform well while high yield bonds and emerging market debt produced negative returns.
  • The favourable global economic backdrop bolstered corporate conditions.
  • Commodity prices rose, causing Australian equities to post positive returns.

This environment proved to be favourable for portfolios with relatively larger allocations to listed properties and government bonds.

 
Key factors impacting financial market performance during the month were:

 

Equity Markets

  • Major equity markets posted mixed returns during the month, largely due to heightened political risk.
  • The USA's approach to global trade, North Korea and Iran remain uncertain, while Italy's new populist government added to market concerns.
  • Domestic equities fared better, posting a positive return largely off the back of rising commodity prices.
  • The global economic backdrop is still relatively supportive, despite the increased political risk. The ongoing strength of global growth was evident in corporate earnings reports.
  • There is still little sign of inflation so any interest rate increases look to remain gradual.

 

Debt Markets

  • Global government bond markets produced positive returns with bond yields falling in response to Italy's heightened political risk. Non-government bond performance was mixed.
  • Highly rated corporates posted a modest positive return.
  • Emerging market debt and high yield bonds posted negative returns as the premium that investors demand for bearing the additional risk increased.

 

Currency

  • Currency markets responded to similar themes to risk assets over the month.
  • The Australian dollar rose due to the increase in commodity prices.
  • The US dollar continued to rise due to being seen as a safe currency.