How is 2013 shaping up for super investors?
Investment markets update
28 February 2013
At a glance
- Australian shares extend their rally to a ninth month
- Global share markets flat in February
- Commodity prices weaken
- Global bond yields fall
- Australian dollar down against the US dollar.
Nine in a row for the Australian sharemarket
The local market rose for an ninth consecutive month in February, with the S&P/ASX 200 Accumulation Index closing the period 5.4% higher.* The local market’s gain was driven mostly by a series of better than expected domestic earnings results. Limiting the gains were weaker commodity prices and softer Chinese manufacturing figures.
So far this year, the Australian share market has returned 10.6%. This compares with 11.2% in Japan, 7.9% in the UK, 6.2% in the US and -0.1% in Europe.
Global sharemarkets take a breather^
Global share markets were flat in February as investors digested numerous positive and negative events. On the plus side, US Federal Reserve chairman Ben Bernanke firmly defended his bank’s massive bond-buying initiative and there was also further merger and acquisition activity in the key US market. However, these positives were countered by renewed euro-zone concerns, particularly the prospect of a drawn-out leadership battle in Italy which could severely impact the country’s austerity program. Markets were also hampered by an element of profit taking in the wake of recent strong gains, Moody’s decision to strip the UK of its AAA credit rating and news that China’s manufacturing sector had shrunk to its lowest level in four months.
So far this year Japanese markets have returned 11.2%, the UK 7.9%, the US 6.2% and Europe returned -0.1%.
Domestic interest rates on hold
The Reserve Bank of Australia (RBA) left the official cash rate unchanged at 3.00% in its February meeting. The RBA nonetheless maintains its easing bias, with expectations that it will cut interest rates twice by year’s end as investment in the mining sector continues to slow and activity within the non-mining sectors remains soft.
It’s likely that February’s pause is nothing more than a long overdue consolidation in an otherwise steady uptrend. An improving global growth outlook, low interest rates and recent policy action by the US Federal Reserve and the European Central Bank should continue to support growth in these key markets this year. But there are still several unresolved problems that could adversely affect financial markets this year. US officials may have avoided the fiscal cliff but investors are growing anxious about the government’s ability to contain the country’s soaring level of debt. Europe still has a long way to go before it is truly out of the woods, with disappointing economic data and high unemployment causing political and social tensions across the region.
The Australian economy remains relatively well placed compared to the US and the euro-zone. Moves by Chinese officials to ease monetary policy and boost economic growth should continue to provide support to the Australian sharemarket.
The RBA is expected to lower the official cash rate further in 2013 in an effort to boost growth outside of the local mining sector. However, any decision to cut interest rates will be balanced against any improvement in the global growth outlook. Importantly, Australian interest rates are still relatively high compared to those in other major countries, giving the RBA plenty of room to move should the need arise.
*S&P/ASX 200 Accumulation Index / Bloomberg
^US shares measured by the S&P 500 Index / European shares measured by the Dow Jones Eurostoxx50 Index / UK shares measure by the FTSE 100 Index / Japanese shares measured by the Nikkei 225 Index / Global shares measured by the MSCI World Index
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