Market review

 

Market review for the March quarter 

The global economy continued its recovery over the March quarter against a backdrop of elevated macroeconomic and geopolitical risks. These include escalating tensions in Syria and North Korea, concerns of rising populism across Europe and uncertainty surrounding the outcome of Brexit.

In the US, the inauguration of President Donald Trump on 20 January 2017 saw equity markets rally on expectations that his leadership will bring about a wave of economic stimulation stemming from proposed tax reforms and significant fiscal spending. Towards the end of the quarter, however, investors became increasingly cautious regarding Trump’s ability to deliver on his proposed pro-growth reforms, with critical policy details still lacking and following his first failed attempt at passing meaningful legislation. The US Federal Reserve raised interest rates by 0.25% in March, citing support from improving economic fundamentals. This marked a convincing step on their path towards interest rate normalisation.

In Australia, a sharp recovery in commodity prices boosted the monthly trade surplus to the highest ever on record in December 2016, resulting in a strong earnings season in the March quarter. This, combined with an increase in domestic consumption and strength in the domestic manufacturing sector, contributed to strong domestic economic conditions and improving business sentiment. The Reserve Bank of Australia (RBA) kept interest rates unchanged over the quarter, highlighting the heightened risks within the Australian property market due to an acceleration of domestic household debt combined with low income growth and low core inflation.

The Australian Dollar (AUD) outperformed most developed currencies for the quarter, appreciating 5.4% against the US Dollar, 4.1% against the British Pound and 3.9% against the Euro.

Maritime Super’s investment options posted strong returns for the March quarter and, more importantly, over 3 and 5 years. Over all of these periods, the investment returns have also been ahead of the published return objectives.

 

Australian shares rose 4.7% over the quarter, measured by the S&P/ASX300 Accumulation Index. Small cap stocks underperformed large cap stocks.

International shares, as measured by the MSCI World ex-Australia Index (hedged into AUD) rose 5.9% over the quarter. Across other developed markets, Switzerland (7.2%), Germany (7.0%) and the US (6.2%) outperformed, while Canada (2.1%) and the UK (3.8%) were among the weakest performing countries in local currency terms. The MSCI Emerging Markets Index (5.8%) outperformed unhedged developed markets (1.0%).

Australian property (unlisted) returned 3.0% over the quarter.

Australian bonds returned 1.2% over the quarter, outperforming hedged international bonds (0.7%). Long duration bonds outperformed over the period.

The RBA maintained the cash rate at 1.5% during the quarter.