Monthly Newsletter - May 2011

Editors Note

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

Global equity markets moved higher over April recovering last month’s losses while Australian equities finished in the negative due to selling on the back of a strong Australian dollar. 
 

Inspirational Quote

It's not what you do once in a while; it's what you do day in and day out that makes the difference.

Jenny Craig (Co-Founder of Jenny Craig Weight Loss)

Funny Picture

How many chickens and ducks can you carry on your motorbike?

Market Commentary  

Global equity markets moved higher over April recovering last month’s losses. A positive earnings season in the US and signs of further recovery in the global economy drove markets higher. Australian equities finished in the negative due to selling on the back of a strong Australian dollar. Global and Domestic Bonds posted positive returns after yields decreased. 

Performance scorecard to 30 April 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 first quarter 2011 inflation data. Headline inflation rose 1.6% quarter on quarter, which was larger than expected. Annual headline inflation is at 3.3% year on year.

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

• US economic data released continued to indicate an improvement in the macro environment. The unemployment rate dropped to 8.8%, housing starts improved beyond consensus and consumer confidence measures were robust.

• The US Federal Reserve left interest rates on hold at 0.25% and continued its quantitative easing program, due to finish in June.

• Standard and Poor’s placed the US’s long-term government debt rating on a negative outlook.

• Chinese economic data released in April saw GDP grow 9.7% year on year and inflation at 5.4% year on year, both above consensus. Further tightening measures were implemented including raising interest rates (by 25 basis points to 6.31%) and increasing bank reserves, for the fourth time this year.

• The Portuguese government requested a formal bailout from the European Union (EU) and International Monetary Fund (IMF).

• The European Central Bank (ECB) increased interest rates to 1.25% from a record low of 1% to combat inflationary pressures.

• The oil price rose 6.5% to US$113.67 per barrel.

Australian Shares

The local market rallied early in the month, on the back of ongoing strength in offshore markets before declining in the second half of April to finish marginally down. The sharp rise of the Australian dollar held back earnings for a number of companies and contributed to the sell off. The S&P/ASX 300 index returned -0.3% for the month, to finish the quarter +2.7%.

Large cap stocks (+0.2%) outperformed their Mid cap (-2.0%) and Small cap (-2.6%) counterparts for the fourth month in succession.

Telecom Services (+3.2%) and Financials ex Property (1.9%) outperformed, driven by the strong performance of Telstra (+4.0%) and the Big Four banks.

Overseas Shares

In local currency terms, the MSCI World ex Australia index returned +2.4%. Due to the appreciation of the Australian dollar, the return for unhedged Australian investors was eroded to -1.5%. The month of April saw Growth stocks (-1.3%) outperform Value stocks (-1.6%) in Australian dollar 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 +3.0%, the Dow Jones Industrial Index +4.1% and the NASDAQ Composite Index +3.4%, in local currency terms. In Europe, the FTSE 100 (UK) returned +3.0%, the DAX 30 (Germany) +6.7% and the CAC 40 (France) +3.3% in local currency terms. In Asia, the Chinese Shanghai Composite Index returned -0.6%, Hong Kong’s Hang Seng +1.0%, India’s BSE 100 Index -1.0% and the TOPIX (Japan) -2.0% again in local currency terms.

Emerging markets returned -2.6% over the month in Australian dollar terms.

Property

Domestic listed property trusts (A-REITs) returned +0.3% for the month. Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index) returned +3.5% during April.

Fixed Interest

The UBS Australia Composite Bond Index returned +0.5% for the month. The Citigroup World Government Bond (ex-Australia) and the Barclays Capital Global Aggregate Bond Index returned +1.0% and +1.2%, over the month respectively.

Currency

The Australian dollar appreciated against all currencies over April. The local currency rose 5.8% against the US Dollar, 3.6% against the Yen, 1.7% against the Pound Sterling and 1.2% against the Euro. The Australian dollar rose 3.4% on a trade-weighted basis. 

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

Investment and Super Concepts - No need to panic, the long-term trend is up

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 first concept is - No need to panic, the long-term trend is up.

• There have been a number of major economic and political events in the past 30 years or so that have led to some sort of short-term market uncertainty.

• After each period of uncertainty the market has recovered and then continued to grow.

• Too often, investors lose sight of their long-term investment strategy and sell at exactly the wrong time, or they are nervous about entering into the market and put off reinvesting, which means they miss out on potential growth opportunities.

• History tells us that despite the inevitable market ups and downs, the long-term trend in the Australian market remains up.

• $10,000 invested in the Australian share market in December 1979 would now be worth $345,603 (peaking at $414,660 in September 2007) as shown the in the chart below.

Summary: There have been a number of significant economic and political events over the years that have affected the direction of the Australian share market. But despite the short-term uncertainty that these events create, the long-term trend in the local market remains positive. 

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

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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.