Financial Markets Update - December 2011

Investors remained cautious in December 2011 as it became apparent that the much anticipated European Summit would provide no clear resolution for Europe's debt problems, which plagued markets for most of the year. A typical growth portfolio returned around 0.1% for the month.

Australian Shares

The Australian sharemarket (S&P/ASX 300 Accumulation Index) ended December 2011 down 1.4% and down 11% for the  2011 calendar year,  with Resource stocks returning -4.7%, dragging the market lower as a result of falling commodity prices and concerns on the outlook for China.  Telecommunications and Utilities were the strongest performing sectors over the month, returning 5.0% and 2.5% respectively. Small companies were weaker, returning -4.3% as small resources suffered from diminished demand.

Overseas Shares

Global share markets (MSCI World ex Australia Index) were flat over December 2011, returning 0.0% in US$ terms. Australian-based investors benefited from a fall in the Australian dollar (A$) to achieve a return of 0.2% in A$ terms.  Returns for the global sectors were generally modest over the month, however Materials fell the furthest, returning -4.6%, whilst the defensive sectors of Healthcare and Consumer Staples gained the most, returning 3.2% and 1.5% respectively. Emerging markets were weaker than their developed market counterparts, returning -1.0% as investors showed a lack of willingness to take on additional risk. 

Real Assets

Both property and infrastructure fared well in December 2011, but commodities fell. Agricultural Commodities returned  -0.6% in US$ terms and Broad Commodities -3.4% in A$ terms.  Global Listed Infrastructure  returned 2.2%, whilst Global Listed Property returned 2.3%, both in A$ terms. 

Fixed Interest

Central bankers around the world kept cash rates steady in December, with the exception of Australia, where the cash rate was cut for a second successive month by 25bps to 4.25%.  The lack of an apparent solution to Europe's debt crisis meant bond yields continued to fall.  Ten-year bond yields fell over the month as investors remained sceptical: US (-19bps to 1.88%), Japan (-10bps to 0.96%), Germany (-46bps to 1.78%), UK (-32bps to 1.98%) and Australia (-22bps to 3.71%). Two-year yields also fell: US (-3bps to 0.23%), UK (14bps to 0.35%), and in Germany (-18 bps to 0.13%).

Both Australian sovereign bonds and overseas sovereign bonds were positive, returning 1.0% and 2.1% respectively (both in A$ hedged terms) as investors stayed away from share markets. Australian inflation linked bonds and global inflation linked bonds also posted solid returns, delivering 2.0% and 2.5% respectively (again in A$ hedged terms).  Global Credit also performed well to return 2.4% (A$ hedged) for the month.

Currency

The $A remained steady over December 2011 to end the month/year at US$1.0252. This translated into a 0.2% fall and the local dollar also depreciated marginally relative to the Japanese Yen (-1.1% to ¥78.9) but appreciated relative to the Euro (+3.5% to €0.79).

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