Financial Markets Update - July 2010

Share markets recovered in July 2010, though a stronger Australian dollar wiped much of the gains for unhedged overseas share market investors.  Real assets were also stronger, whilst fixed interest was mixed.  The Australian dollar gained strength against all the major currencies.  

Australian Shares

The Australian share market recovered in July with the ASX 300 Accumulation Index ending the month up 4.5% (compared with a fall of 11.2% over the previous three months), thanks largely to better earnings reports from key Australian corporates and more comforting news from Europe in regards to the sovereign debt situation.  Small companies (S&P/ASX Small Ordinaries Index) did better, returning 5.2% (after falling 11.6% over the prior two months).  The previous month’s weakest sectors - Industrials and Financials - were the strongest performers in July, returning 7.1% and 6.4% respectively.

Overseas Shares

Global share market performance was stronger with the MSCI World ex Australia Index returning almost 8.0% in US dollar (USD) terms over the month, and recovering some of the 12.8% lost in May and June).  Unfortunately, for unhedged local investors, a strengthening Australian dollar diluted this return to 0.7%.  Global markets responded well to improved corporate earnings reports.  All global sectors were positive, with Telecommunications and Financials returning double-digits while Healthcare under performed, returning just 0.8%. 

In the US, the S&P 500 and NASDAQ indices both returned 6.9% and the Dow Jones 7.1%.  Europe (UK: 6.9%; France: 5.8%) and Asia (Singapore: 5.8%, Hong Kong 4.5%, Japan: 1.6%) both rose.

Most emerging markets were again stronger than developed markets, with China, Brazil and Argentina leading the pack to return 11.9%, 10.8% and 9.6%, respectively.

Real Assets

The real assets sector was also strong with overseas listed property bouncing back following two successive negative months to deliver a return of 7.8% in July.  Global listed infrastructure returned 5.0%, commodities returned 7.1%, but agricultural commodities outperformed all, returning 18.0% for the month (in A$ hedged terms), primarily due to surging wheat and sugar prices.

Fixed Interest

Australia’s official cash rate remained steady at 4.5% in July, with the cash rates of most other developed nations also unchanged in the month.  However rates were increased in Canada and New Zealand, up 25 basis points to 0.75% and 3.0%, respectively.  Longer-term bond yields were mixed - lower in the US, UK and New Zealand; higher in Australia, Germany and Europe and steady in Japan.  Most of the fixed interest asset classes still delivered positive returns in July.  Of these, global credit was the strongest, returning 1.9%.  Only Australian inflation-linked bonds failed to deliver a positive return, returning -0.8% for the month.

Currency

The Australian dollar (A$) appreciated strongly against the USD and Japanese Yen, rising 7.2% and 5.0% respectively against these currencies.  The A$ also rose 0.8% against the Euro.  The USD weakened against both the Euro and the Yen. 

 

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