Monthly Newsletter - June 2011

Editors Note

This edition includes an inspirational quote, a funny picture, a market commentary with the main index returns during May 2011, and investment and super concepts. I encourage you to make comments.

Global equity markets fell in May as investors continued to reassess European debt issues, the stability in US economic growth and inflationary concerns in Asia. Australian equities lost 2.0% with the local market influenced by inflationary threats in key Asian export markets.

Inspirational Quote

Everyone dies, but not everyone fully lives. Too many people are having a near-life experience.

Author Unknown

Funny Picture

Anyone want to go for a swim? How about this crowded swimming pool from Japan.

Market Commentary  

Financial markets fell in May as investors continued to reassess European debt issues, the stability in US economic growth and inflationary concerns in Asia. US annual GDP growth forecasts were revised down to 3%. Australian equities lost 2.0%, with the local market influenced by inflationary threats in key Asian export markets. Commodities along with oil and gold fell on a weaker global outlook. 

Performance scorecard to 31 May 2011  

Indexes used: Cash: UBS Australian Bank Bill Index, Diversified fixed interest: UBS Australian Composite Bond Index, Australian shares: S&P/ASX 300 Accumulation Index, Property: UBS Global Real Estate Investors Index (hedged in Australian dollars), International shares (hedged): MSCI World Accumulation Index (hedged in Australian dollars) and International shares: MSCI World ex Australia Accumulation Index.

Significant developments over the month were: 

• Domestic economic data was highlighted by the first quarter GDP figure which was down 1.2%. This was the largest fall in 20 years on the back of the Queensland floods (which saw a 2.4% fall in net exports). Employment was down by 22,100 along with a modest fall in house prices and softer credit growth.

• The RBA left interest rates on hold at 4.75% in May, remaining happy with their “mildly restrictive stance of monetary policy.”

• US economic data released in May indicated the economy had weakened in recent months. Employment, manufacturing and house price indices all were down.

• The US Federal Reserve continued to leave interest rates on hold at 0.25%. However, the Fed appears resolute in ending the second round of its quantitative easing programme (QE2) in June.

• In line with the US and Euro zones the Chinese PMI Manufacturing index fell, hitting its lowest level in three quarters (down from 52.9 to 52). The recent Chinese policy tightening measures in response to inflationary threats (last recorded in April at 5.3%) including interest rate increases (currently 6.31%) and an increase in the reserve requirement ratio to 20.5% all worked to slow economic activity.

• Japanese real GDP for the March quarter fell 3.7% (annualised), far worse than market expectations of 1.9% as a result of the recent tsunami disaster.

• The rating agencies have placed the credit ratings of Belgium and Italy on negative outlook as a result of continued political gridlock and a weakened economic and fiscal outlook. Greece continues to cause the markets concern with more funding required from the EU and IMF, conditional on cuts to its budget deficit – which have yet to be achieved. However, Euro zone data (in aggregate) was supportive of economic growth with GDP growing 2.5% overall for the year.

• The oil price fell 9.8% to US$102.51 per barrel. 

Australian Shares

The local market fell in May in line with a global sell off across risk assets generally reflecting investor concerns on global growth and inflationary threats. The market was influenced by inflationary threats in key Asian export markets. The S&P/ASX 300 index returned -2.0% for the month, to finish the quarter -1.7%.

In contrast to the previous four months Large cap stocks (-2.3%) underperformed their Mid cap (0.2%) and Small cap (-1.9%) counterparts.

Defensive sectors including Telecom Services (+4.2%), Consumer Staples (0.5%), and Utilities (+0.4%) outperformed the market driven by the strong performance of Telstra (+4.6%) and Woolworths (+3.4%). Sectors which underperformed included Financials ex Property (-4.9%) and Consumer Discretionary (-3.1%) with Westpac (-10.4%) the worst performing stock.

Overseas Shares

In local currency terms, the MSCI World ex Aus index returned -1.2%. Due to the modest depreciation of the A$, the return for unhedged Australian investors was enhanced to +0.7%. Similarly to April, May saw Growth stocks (+0.9%) outperform Value stocks (+0.6%) in A$ terms, based on the S&P Developed ex-Australia Large Medium Cap Value and Growth indices.

In the US, the S&P 500 Composite Index returned -1.1%, the Dow Jones Industrial Index -1.5% and the NASDAQ Composite Index -1.2%, in local currency terms. In Europe, the FTSE 100 (UK) returned -1.0%, the DAX 30 (Germany) -2.9% and the CAC 40 (France) -0.3% in local currency terms. In Asia, the Chinese Shanghai Composite Index returned -5.8%, Hong Kong’s Hang Seng +0.7%, India’s BSE 100 Index -2.7% and the TOPIX (Japan) -1.6% again in local currency terms. Emerging markets were flat over the month in A$ terms.

Property

Domestic listed property trusts (A-REITs) were flat over May. Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index) returned +1.6%.

Fixed Interest

The UBS Australia Composite Bond Index returned +1.3% for the month. The Citigroup World Government Bond (ex-Australia) and the Barclays Capital Global Aggregate Bond Index returned +1.5% and +1.4%, on a fully hedged basis over the month respectively.

Currency

The A$ depreciated against all major currencies over May except the Euro. The local currency fell 2.6% against the US Dollar, 2.5% against the Yen, 1.3% against the Pound Sterling and rose 0.5% against the Euro. The A$ fell 1.4% on a trade-weighted basis. 

The Market Commentary has been sourced from Mercer (Australia) Pty Ltd.

Investment and Super Concepts - The positives outweigh the negatives

Investment and super concepts will now be a regular monthly feature to help explain to investors some key concepts and strategies for successful investing.

For many Australians, investing may seem a daunting experience. Events like the global financial crisis and the more recent European sovereign debt crisis can affect the confidence of investors.

They also highlight the need for investors to seek reassurance and guidance from their financial adviser about what action to take. 

The second concept is - The positives outweigh the negatives.

• In the past 111 years, the Australian share market has generated 89 years of positive returns compared with only 22 years of negative returns.

• That means an average return of 13.5% over the period.

• On 74 occasions the market has managed to post gains of 10% or more. That compares with just 9 losses of 10% or more.

• In the past 15 years, there have been only 2 years where negative returns were experienced.

Summary: Since 1900, the Australian share market has continued to generate strong returns for investors, with the number of positive years significantly outweighing the negative ones.

The above information has been sourced from Securitor Financial Group Ltd.

Tell A Friend About My FREE Blog

Click Email A Friend to complete a form and your friend will be emailed a link to subscribe to my FREE Blog.

Past Issues

Please click on the Newsletter category on the left or click Newsletter Archive to view past issues.

Important Information

The above information provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The above information doesn’t take into account your personal objectives, financial situation or needs. It’s important for you to consider these matters before making any financial decision and I recommend you seek help from a financial adviser.