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Investment Update for 2017/18

with Funds SA Chief Investment Officer - Richard Friend

 

February 2019 Overview

Key drivers of performance during the month included:

  • Global equities outperformed government bonds
  • Australian equities outperformed most of their global counterparts. 
  • Non-government bonds outperformed government bonds.

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


Key factors impacting financial market performance during the month were:

Equity Markets

  • Equity market performance was positive continuing January's strong performance.

  • Trade negotiations between the US and China continued, key areas of contention included tariffs and intellectual property.

  • There was enough progress in the negotiations for the US to not impose the increase in tariffs that was planned for 1 March. President Trump signed a bill that would provide funding to the federal government, ending the partial government shutdown. These outcomes drove bond yields and the US dollar higher and growth assets, such as listed equities, higher. 

  • The Reserve Bank of Australia again left interest rates on hold, though noted that the probability of an interest rate increase or decrease is now more evenly balanced. This helped Domestic equities generate a strong positive return and outperformed most of their global counterparts.

  • All sectors posted positive returns, with the exception of consumer staples which due to weaker sales posted a negative return.

Debt Markets

  • Global government bond markets produced slight negative returns over the month.
  • Nongovernment bond performance was positive, with corporate bonds, emerging market debt and high yield bonds posting strong positive returns as the excess returns that investors demand for bearing the additional risk decreased meaningfully.
  • Domestic bonds outperformed global given concerns around Australian residential property market increases the chances of an official interest rate cut in Australia. 

Currency

  • The Australian dollar fell as specific ports in China announced they will cap overall coal imports for 2019, whilst lower domestic interest rates lowered the attractiveness of the domestic currency.