Investment Update

with Funds SA Chief Investment Officer - Richard Friend

 

January 2018 Overview

Key drivers of performance during the month included:

  • Stengthening sychronised global growth environment and US tax cuts bolstered investor sentiment, lifting risk assets and bond yields.

  • Central bank policy remained supportive despite expectations that the US Federal Reserve will continue increasing interest rates during 2018.

  • Domestic listed equities underperformed as growth and policy environment continues to lag global peers.

This environment proved to be favourable for portfolios with relatively larger amounts of global listed equities.


Key factors impacting financial market performance during the month were:

Equity Markets

  • Global equity markets rose strongly through the month, reaching all-time highs in the US. Continued evidence of synchronised global growth, supportive policy, coupled with recent lowering of US corporate tax laws, fuelled the strong rise during the month.

  • Investor sentiment was buoyant as continued strong economic numbers were released in the US, Europe and Japan.
  • In Europe business confidence and industrial activity continued to improve the unemployment levels which has seen comsumer confidence improve.
  • Japanese and other Asian regions continue to outperform as strong links to Chinese growth has propelled local markets higher over the period.

  • Australian stocks were down slightly as continued strong employment growth was offset by poor retail sales and concerns that domestic households were susceptible to high debt levels and elevated property prices.
  • Central bank policy remained supportive over the month, however recent comments from major policy makers suggests rates would move higher over the year. This undermined interest rate sensitive sectors such as property trusts and utilities.

Debt Markets

  • Global government bond markets underperformed as stronger growth and inflation, increased expectations that central bank policy will continue to tighten, which caused interest rates to rise.

  • Not all debt sectors underperformed as securities tied to stronger growth such as high yield and emerging market debt performed positively.

Currency

  • Currency markets responded to similar themes to risk assets over the month.

  • The sychronised global growth environment saw an improvement in currencies that have a stronger link to global growth and commoditites, such as emerging market currencies and the Australian Dollar.

  • The US Dollar continued to decline over the period.