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Editors Note

This edition includes an inspirational and funny quote, the main market index returns during April 2009, a market commentary and a feature story. I encourage you to make comments.

With the world economy contracting at a slower rate, the world stock markets had a very strong month.

Inspirational Quote

Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover - Mark Twain.

Funny Quote

Women prefer men who have something tender about them - especially legal tender - Kay Ingram.

Market Statistics

The table below shows the monthly returns for the main market indices during April 2009. 

Market Commentary

The turnaround in world equity markets which began in early March continued in April with the MSCI World Accumulation Index (AUD Hedged) increasing a further 10.1%. Investors became less risk averse on the back of some encouraging news that suggested the rate of decline in economic growth, particularly in the US, was slowing. Better-than-expected results so far from the first quarter reporting season provided further support, suggesting that analysts' estimates may have been too low. There are some signs that the world economy is stabilising and this has provided a backdrop for the market turnaround and expectations that a recovery could come later this year.

The US market (in local currency terms) gained 9.6% in April as bellwether companies beat market forecasts and the Federal Reserve kept interest rates steady at between 0-0.25% with upbeat announcements on the economy. However, the outlook in the US is tempered by rising unemployment and tight credit conditions which may constrain household spending and imply that recessionary conditions could continue for some time.

Collectively, the European markets gained 13% and moved into positive territory YTD. There were some extraordinary gains made in some markets as seen by the 28.6% rise in Finland, 24.9% in Greece, 22.3% in Sweden, 19.4% in Italy and 18.6% in Denmark. In the UK, the equity markets gained 8.9% as the central government left interest rates at 0.5% and plans to go ahead with its quantitative easing, supplying the financial system with ₤75 billion to encourage banks to lend to each other, to individuals and to businesses.

In Asia, the Japanese markets rose by 9.2% in local currency terms in response to more buoyant conditions, particularly for its exporters. In an attempt to revive its flagging economy, the government unveiled a US$150 billion stimulus package in April which prompted further gains. Hong Kong and Singapore surged by 16.9% and 14.2% respectively in April.

Following on from the strong gains made since early March, the banking sector posted another 21.2% rise ahead of the Stress Test results. Both Consumer Discretionary (+18.2%) and Industrials (+16.3%) sectors also performed strongly in April followed by IT (+12.6%) and Materials (+11.4%). Healthcare (-0.3%), Telco (1.7%) and Consumer Staples (3.4%) were the laggards.

Australian stocks ended April at a 5 month high by posting successive monthly gains for the first time in 12 months, after reports showed the world economy is contracting at a slower rate and China's economy is holding up relatively well. The benchmark S&P/ASX 300 Accumulation Index rose 5.7% to finish about 20% above its March lows.

The Market Commentary has been sourced from Global Value Investors Ltd and Barclays Global Investors.

Feature Story - Starting early for a nest egg

Crystal and Ben are a married couple in their early 30s, with a child on the way. They each earn $135,000 pa and over the years have invested into three residential investment properties, generally with negative gearing to assist in managing their tax position. They currently do not own their own home. Managing the cash-flow requirements of such negative gearing positions has not been a concern for them to date.

They have $200,000 accumulated between them in a retail superannuation fund.

Crystal and Ben have decided to sell one of their investment properties, and use the proceeds to pay out the debt remaining on another, which they will move into as their principal residence. They will use any remaining sale proceeds to partially repay the debt owing on the third property to move it to a positive gearing situation.

Not having to pay rent themselves or fund negatively geared investments, Crystal and Ben are confident they will have sufficient cash-flow to meet their daily living needs after the birth of their child. However, they are still concerned about tax efficiency and building a nest egg for their retirement.

After speaking to their financial adviser, Crystal and Ben decide to establish a Self-Managed Super Fund (SMSF). Once established, they will set up a geared self-managed super facility and use $100,000 of cash available within the Fund and $100,000 of borrowed monies (at 10% interest) to set up a geared portfolio within super. They will also salary sacrifice a combined $30,000 between them to super each year.

As shown in the graph below, the result of this strategy (assuming investments earn 4% income (70% franked) and 6% capital growth) is that their retirement savings will grow to $11,808,127 over the next 30 years. They could also improve their position further if they choose to undertake a regular instalment gearing program and make further geared investments every five years within the super fund. 

This feature story was prepared by Securitor Financial Group Ltd, who is owned by Westpac Banking Corporation.

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Important Information

Information provided in this newsletter is general in nature and does not constitute financial advice. While I have taken reasonable care in providing this information, it should not be construed as being specific to your investment objectives, financial situation or particular needs. It's important for you to consider these matters before making any financial decision and we recommend you seek financial advice.