Market Update for June 2019
We have just rounded out another financial year and it can be helpful to reflect on what dominated the news throughout this time and how financial markets performed.
World Events in June quarter
US-China trade tensions continued and financial media focused a lot of their discussions around signs of global economic slowdown.
The Reserve Bank of Australia cut rates in June and July, leaving the cash rate at a historic low of 1%.
Taking a look globally, India, Malaysia and the Philippines all lowered their cash rates and the US indicated in June that there would be at least one rate cut this calendar year.
In April the International Monetary Fund published their semi-annual global economic outlook and downgraded its official global growth outlook for the third time since October 2018 and stated that the world economy faced ‘a delicate moment’.
In the UK, Theresa May stepped down as the leader of the Conservative Party due to the stalemate over Britain’s plan to leave the European Union (EU). The EU extended the deadline for Brexit until October 31st. It’s all on Boris now.
In Australia, the federal election in May confounded pollsters, pundits and betting agencies as the Liberal National Party Coalition, led by Scott Morrison secured a victory.
Investment Markets
When we look at financial returns, we see a very different and positive narrative with equity and fixed interest markets delivering positive returns over the financial year.
Comments on investment returns
Australian equity market returned over 11% for the financial year. The top performing sectors were communication services (led by Telstra), materials and healthcare. The weakest performer was energy stocks. See Graph 1 below.
Developed markets returned nearly 12% over the financial year, with the United States being one of the top performing countries. Globally, the energy sector again was the worst performing sector. See Graph 2 below.
In bond markets, we saw positive returns locally in Australia and globally, with the Australian bond market being the top performer again.
Real estate investment trusts or REITS outperformed the wider equity market.
On currency markets the Australian dollar was broadly weaker over the year, posting its biggest falls against the Japanese yen, Swiss franc, Canadian and US dollars.
Graph 1 - Australian sector returns
Graph 2 - International sector returns
Key takeaways
We have seen that world news is not always linked with how financial markets perform and what type of investment return you will receive.
We know that after the volatility of the December 2018 quarter, many Australian equity fund managers sold out of the market with the expectation that 2019 would be a bad year for markets. The March 2019 quarter ended up being one of the strongest quarters on record.
It is important to be informed and knowledgeable about current world events, however, not to let this inform your investment decisions. Allow your investment decisions to be informed by your personal financial situation and strategy and world news to act as interesting points of discussion.
Author: Rick Walker