Investment Report August 2018
Investment markets strengthened during the last three months of the financial year with the Australian share market (ASX 200 Accumulation Index) producing a return of 13.0% for the year to 30 June 2018. The global share market also experienced strong returns over the year with MSCI World – ex Australia Index returning 15.4% unhedged and 11.5% hedged. The returns are strong results given the volatility experienced in the market over the financial year due to geo-political uncertainties. A recap of events includes US trade wars with China, military threats towards North Korea, an Italian election, Brexit concerns and the numerous tweets made on a regular basis by the US President. Despite all these events, the global economy continued to strengthen over the year and share markets reached record highs. There is no better example of these highs than the recent valuation of Apple at over $1 trillion ($1,000,000,000,000). Solid economic data in the United States continues to create jobs and increase business investment.
Despite several elections, Europe continues to improve with the unemployment rate declining further. The European Central Bank has left interest rates unchanged throughout the year and confirmed its intention to stop its easing program at the end of December this year “subject to incoming data.” In Japan, economic data remains positive but may be impacted by recent floods.
Chinese markets were impacted by slowing growth signals and the growing threat of a trade war. The Chinese RMB depreciated against the USD by 3.3% during June. In local currency terms, the Chinese stock market is down 10.8% over the year to 30 June 2018.
In Australia, the Reserve Bank left the cash rate at 1.5% over the year with no rate rises priced into markets until mid to late 2019 due to inflation remaining below the target range. This contrasts with the United States which increased the Federal Reserve Rate in December 2017 (1.5%), March (1.75%) and June 2018 (2.0%) as economic conditions improved.
With geo-political events dominating the landscape and interest rates on hold in Australia, domestic bond yields have remained relatively flat resulting in returns of 3.1% (Bloomberg Ausbond Composite Index) over the year.
The Australian dollar has depreciated against the USD by 3.9% over the financial year to finish at 0.7391, compared to 0.7692 at 30 June 2017.
Chief Investment Officer, CBH Super
Previous Investment Reports - April 2018