Investment updates

Each month we provide information on the latest market updates highlighting national and international events and current market trends.  Reports from the last few months can be found below.

• Market Commentary November 2021

  November began well in most markets, but risk sentiment dampened with the emergence of the Omicron variant, sparking fears over the re-imposition of lockdowns potentially stymying the economic recovery. Bonds gained from a decline in yields and unhedged currency positions benefited from a substantial fall in the AUD in the 'risk off' environment.

  US equities traded slightly lower in November, despite beginning the month positively. Early in the month, the market was supported by solid corporate earnings results, low unemployment figures and bipartisan progress on the Biden Administration's US$1 trillion infrastructure spending bill. However, US equities then dipped as inflation concerns impacted consumer confidence, compounded by fears that Omicron could be more vaccine-resistant, causing some to question the sustainability of the US' current economic strength. Investor sentiment stabilised towards month-end, led by the technology and consumer discretionary sectors, as US chipmakers gained strongly in response to increased demand amid supply constraints.

  Concerns surrounding Omicron were echoed globally, as a sharp rise in COVID hospitalisations in parts of Northern Europe resulted in the re-introduction of lockdowns and movement restrictions in countries such as Austria, Belgium and Germany. Annual inflation increased to 4.9% during the month, well above the European Central Bank's 2% target.

  The MSCI World Index ex-Australia (hedged into AUD) fell -1.5% over November, significantly underperforming the unhedged Index, which finished up 3.7%, benefiting from the decline in the Australian dollar. Amongst the developed markets, in local currency terms, Austria (-0.1%), Switzerland (-0.2%) and Sweden (-0.6%) were the strongest performers, while Singapore
  {-6.1%), Ireland (-6.7%) and Spain (-8.2%) were weakest. The MSCI Emerging Markets Index (unhedged) rose 1.6%, underperforming the 3.7% rise in developed markets, with Turkey (+19.7%) and Chile (+9.0%) the strongest markets, while Argentina (-16.5%) and Poland (-8.3%) were the weakest.

  The Australian equity market fell -0.5%. Sector performance was generally dispersed, with Materials delivering the most notable result, up 6.0% for November. This was mainly due to the recent surge in iron ore prices, driven by an increase in China's steel output as the country's steel mills have begun restocking ahead of a pickup in production in December. Consistent with October, gold remained a significant contributor given its place as an inflation hedge, and with
  the emergence of Omicron shaking investor confidence. One of the most significant developments during the month was the RBA announcing that it would end its yield curve control policy and discontinue its target yield of lObps for the April 2024 Australian Government bond. The AUD fell against the US Dollar by-5.6%, the Euro by-2.9% and the Japanese Yen by
  -6.0%.

  Bond yields were down across the board due to weaker risk appetite, primarily in response to concerns around Omicron which negatively affected investor sentiment, causing investors to seek safe havens to offset the potential shock. The 10-year US Treasury yield ended November at 1.44%, down -0.12% from October end as a result of the Federal Reserve announcing plans for monthly bond purchases to be reduced from US$120 billion to zero by the end of June 2022. In Australia, the RBA's announcement to cease its yield curve control policy resulted in 2 and 10- year government bonds falling-0.28% and -0.38% respectively.

  Commodity prices generally fell during the month, particularly oil, which fell sharply in response to Omicron. This resulted in Brent Crude and the West Texas Index posting their largest monthly price declines since March 2020 and ending the market's year-long rally. Crude futures experienced their biggest monthly decline since the onset of the pandemic, due to a combination of concerns regarding Omicron, industry data showing a lower US crude stock drawdown than initially forecast, which may indicate a drop in future demand, and expectations that coming emergency reserve releases may result in oversupply.

  
  Source: Factset/Jana

• Market Commentary October 2021

  While most asset classes produced positive returns for October, performance was generally weaker than recent months, with the notable exception of global equities. The combination of bottlenecks in supply chains and booming energy prices have continued to fuel concerns around prolonged inflation and as a result, markets have begun to price in a faster pace of tightening from central banks across the world, which has impacted investor sentiment. From a growth perspective, the recovery remains solid, as a number of major developed economies continue their rebound from the COVID-induced lockdowns, however growth rates have begun to abate as the peak now appears to have passed.

  US equities were particularly strong during October, supported by a strong start to the earnings season as a large majority of companies reported earnings above expectations. US markets have continued to be led by higher growth sectors such as IT and Consumer Discretionary and while Value saw some recovery earlier in the year, the long-running dominance of Growth has continued to play out not only in the US, but globally. While GDP growth was soft in the September quarter, economic data released during October showed signs of growth resuming its momentum. However, indications of more hawkish positioning from the Federal Reserve following mounting inflationary pressures somewhat offset this positive outcome.

  Interestingly, the European Central Bank (ECB) has continued to hold the stance that the rise in inflation is transitory, a position becoming increasingly contrarian among major central banks across the world.

  Given the shift in sentiment around inflation and broad-based messaging around interest rate hikes on the horizon, bond yields rose. The 10-year US Treasury Yield hit a high of 1.7% over the course of the month, however ended October at 1.56%, a marginal increase of 0.03% from September end. In Australia, strong economic data and a higher than expected inflation rate led to sharp yield increases for both the 2 and 10-year government bonds, rising 0.57% and 0.59% respectively. A number of other countries saw larger increases to shorter-dated yields in particular, causing interest rate curves to flatten.

  Concerns around the Chinese property sector eased after Evergrande, one of China's largest property developers, made interest payments that had been previously missed in September and the property sector generally began to see more stability. The focus has now shifted, with investors now monitoring how Chinese authorities will manage regulations in the sector to control spill over risks going forward. More broadly, the regulatory environment in China continues to be a watchpoint for investors after recent regulatory developments within the IT and Education sectors. However, given the rebound in Chinese indices after several months of substantial underperformance, markets may be becoming more accepting of regulatory uncertainty.

  The MSCI World Index ex-Australia (hedged into AUD) was up 5.5% over September, outperforming the unhedged Index, which finished up 1.7%, as the Australian dollar rose sharply. In developed markets, Denmark(+7.0%), USA(+7.0%) and Netherlands (+6.9%) were among the strongest performers, while New Zealand (-1.7%), Japan (-1.2%) and Greece (-0.5%) were weakest. The MSCI Emerging Markets Index (unhedged) fell -2.9% with Egypt (+15.1%) and Peru (+13.4%) the strongest markets, while Chile (-6.4%) was the weakest.

  Equity markets within Australia were much weaker than the rest of the world, ending the month with a flat return. Sector performance was generally dispersed with a wide range of returns, however Small Cap Resources delivered notable performance for the month, posting a return over 6% for October which was largely a continuation of the recent strong performance in ESG­ related resources such as a copper and lithium. Gold was also a significant contributor to that area of the market given its place as an inflation hedge, a valued trait in light of recent market developments. More broadly, market returns were largely muted by the RBA's messaging of future rate hikes being pulled forward after conceding that price inflation had picked up with more momentum than planned.

  The Australian Dollar (AUD) appreciated quite significantly against a number of other major currencies over the month, despite tapering off following news of heightened inflation in Australia. Notably, the AUD rose against the US Dollar by 4.0%, the Euro by 4.1% and the Japanese Yen by 6.3%.

  

   Source: Factset/Jana

• Market Commentary September 2021

  Risk markets finished negative for the month, as concerns around the moderating pace of economic growth, supply disruptions and ongoing inflation fears swayed investor confidence globally. Despite vaccination rates rising and data suggesting that hospitalisations have peaked in most developed economies, market concerns were heightened in September. This was driven by the ever-increasing hawkish stance of central banks towards current ultra-loose monetary policies, given the increasing inflation expectations which have been magnified by the large rise in energy prices. Moreover, worries around the systematic financial risk stemming from China’s regulatory changes and Evergrande’s uncertain outlook only served to further dampen investor sentiment during the month.

  US equities were materially down in September. The selloff appeared to be sparked by comments from the Federal Reserve that the tapering of quantitative easing could start as early as November and end by the middle of next year. The Fed funds rate projections were also released, showing expectations that interest rates would rise earlier than had been projected at the June meeting, with Fed officials being evenly split on whether to increase rates in 2022. Further, the Bank of England had a similar hawkish shift, suggesting that it could increase interest rates as early as this year. Consequently, global bond yields rose from the previous month, with the US 10-Year Treasury yield increasing from 1.30% to 1.53%, 10-Year Gilts from 0.59% to 0.95%, Australian 10-year yields from 1.16% to 1.49%, and the Eurozone 10-year yield rose from -0.40% to -0.19%.

  Market worries were only exacerbated by news from China, where the government imposed regulatory changes on the education and technology sectors. In addition, the spillover effects from the potential default of Evergrande, one of China’s largest property developers, cast further doubt on the backdrop of economic growth in the country. Power shortages also occurred in China, as the state rationed power usage given supply shortages in coal, pushing prices of key energy commodities up, which was felt globally as countries like Britain also experienced energy shortages. The MSCI World Index ex-Australia (hedged into AUD) was down -3.7% over September, underperforming the unhedged Index, which finished down -3.0%, as the Australian dollar fell. In developed markets, Japan (+4.5%), Norway (+4.5%) and Austria (+4.0%) outperformed the broader market, while Finland (-7.2%), Hong Kong (-6.0%) and Switzerland (-5.8%) were weakest. The MSCI Emerging Markets Index (unhedged) fell -2.8% with Russia (+5.8%) and Morocco (+5.5%) being the strongest markets, while Argentina (-12.1%) was the weakest.

  In Australia, the equity market also delivered a negative return during the month, where the encouraging progress of the vaccine rollout to reach the targeted double dose threshold was negated by the global news around the tightening of monetary policies and financial concerns in China. The RBA left its cash rate unchanged at their September meeting and Governor Philip Lowe reinforced his commitment of no rate hikes until 2024. Recent employment data shows the impacts of the prolonged lockdown in NSW, Victoria and the ACT, where for the month of August, job losses of 146k were recorded, despite the unemployment rate falling slightly to 4.5%. Consumer sentiment also improved, rising by 2.0% in September after falling by 4.4% in August, which may reflect optimism around the vaccine roll-out progress and the announced roadmaps to exit lockdowns.

  The Australian Dollar (AUD) fell against the USD (-1.2%), although rose against other major currencies over the month, which included the British pound (+0.9%), Euro (+0.7%) and the Japanese yen (+0.4%).

  

  Source: Factset/Jana

• Market Commentary August 2021

  The global reopening continued in August, with a number of developed markets further lifting restrictions. Strong economic data suggests that much of the developed world appears to be at or just past the peak rate of growth. With respect to COVID-19, the Delta variant continued to spread and daily cases continued to rise globally throughout August. However, in the US, Europe and the UK, the rollout of vaccination programmes has resulted in hospitalisation rates not rising anywhere near as fast as during previous surges in case numbers. Equity markets were strong over the month and sub-investment grade credit produced positive returns, while global sovereign bond yields rose in most countries, leading to negative returns from bonds.

  US equities reached new highs again in August. The market took comfort in comments made by the Fed Chairman that while the US economy had made progress on some important targets, notably inflation, the Fed wanted to see further progress in the labour market before reducing stimulus. The comments were consistent with expectations that tapering could begin later this year, but were broadly perceived as dovish. The boost to sentiment overshadowed worries over Hurricane Ida and the spread of the Delta variant. Financials performed well as revenues for major investment banks returned to (or surpassed) pre-pandemic levels whilst Communications Services, including giants such as Alphabet, Facebook and Netflix, were also amongst the strongest performers after announcing strong earnings at the end of July.

  The MSCI World Index ex-Australia (hedged into AUD) rose 2.7% over August, underperforming the unhedged Index of 3.1% as the Australian dollar fell against most major currencies. In developed markets, European markets continued their strong performance, with Portugal (+7.5%), The Netherlands (+7.4%) and Ireland (+6.4%) outperforming the broader market. Singapore (-1.8%), Sweden (-0.8%) and Hong Kong (-0.6%) were the notable underperformers within developed markets. The latter continued to suffer the flow-on effect from the rollout of regulatory measures in China, whose equity market (0% return) was once again also impacted by these events, in addition to dealing with increased COVID case numbers from the Delta variant impacting a number of provinces.

  The MSCI Emerging Markets Index (unhedged) rebounded in August, posting positive returns (+3.2%), led by a very strong month for Argentina (+30.5%) which is experiencing a remarkable turnaround driven by positive sentiment around debt talks with the International Monetary Fund, increased foreign reserves, falling COVID-19 case numbers, and investors eyeing positive outcomes from upcoming mid-term elections. The Philippines (+10.9%) and Thailand (+9.3%) also registered very strong returns for August, while Brazil (-2.8%) and Pakistan (-2.7%) were the main laggards.

  Domestically, the equity market rose in August despite widespread lockdowns as Delta variant case numbers rose in NSW, the ACT and Victoria. While the July unemployment figures released in August continued the recent positive trend, underlying data revealed a fall in the participation rate and a rise in people working zero hours, showing the impact of the lockdown in Sydney that commenced in July. Treasurer Josh Frydenberg commented that the latest round of national lockdowns had caused “significant damage” to the Australian economy, with Treasury advice indicating an anticipated 2% contraction in the September quarter.

  The Australian equity market (S&P/ASX 300 Index) rose 2.6% in August, driven primarily by the sectors of IT (+16.2%) and Health Care (+6.6%), along with Consumer Staples (+6.8%), which benefited from strong performance from supermarket stocks. Materials was the weakest performing sector (-6.9%), with Energy (-3.8%) also lagging as the market pivoted away from more cyclical sectors. Small Caps (+5.0%) and Mid Caps (+3.9%) outperformed Large Caps (+2.0%) over the month.

  The Australian Dollar (AUD) fell against most major currencies over the month, including the USD (-0.6%), Japanese yen (-0.5%) and Euro (-0.1%), but appreciated against the British pound (+0.5%). The US 10-year bond yield rose 0.07% to finish the end the month at 1.30% while the Australian 10-year yield fell marginally from 1.18% to 1.16%.

  

  

  Source: Factset/Jana

• Market Commentary July 2021

  The global economy continued its recovery in July stemming from the steady progress of vaccination activity and easing of restrictions in certain major developed markets (notably the UK) outweighing concerns about the spread of the Delta variant, a more contagious strain of COVID-19. Developed market equities appreciated, while emerging markets equities declined as China announced new regulations for some sectors of the economy. Government bond yields declined (bond prices rose), as investors sought safety, on the back of ongoing Delta variant concerns and some signs that global growth is moderating.

  In the US, despite some moderate volatility, equities saw all three major indices reach all-time highs (before losing momentum later in the month) on a strong earnings season. Interestingly, US Treasury yields fell to their lowest since February, which is typically considered a warning signal for the health of the economy. However, technical factors such as the US Federal Reserve bond purchases, and investors rebalancing equity gains drove some of the demand for government debt. The Federal Open Market Committee (FOMC) of the US Federal Reserve met in July and stated that it will continue its current pace of asset purchases but advised that the path to tapering was discussed. The Federal Reserve is of the view that the recent rise in inflation is likely to be largely transitory.

  The MSCI World Index ex-Australia (hedged into AUD) rose 1.8% over July. In developed markets, Scandinavian countries, Finland (+5.9%), Sweden (+5.5%) and Denmark (+4.9%), outperformed the broader market, while Hong Kong (-2.8%), Japan (-2.4%) and Belgium (-2.0%) underperformed. Hedged returns were lower than unhedged returns (+4.1%) as the Australian Dollar depreciated relative to major currencies over the month. The MSCI Emerging Markets
  Index (unhedged) fell significantly (-4.7%), underperforming unhedged developed markets (+4.1%). Egypt (+7.1%) and Argentina (+6.4%) were the strongest markets, while China was notably the worst-performing market in July, recording a decline of 13.8%. China’s announcement of tighter regulation for the education sector, following earlier scrutiny of the IT sector, weighed heavily on emerging markets, whereby newly imposed regulations forced private tutoring firms to become non-profit businesses.

  Domestically, equity markets rose despite widespread lockdowns across Australia, supported by optimism about improving vaccination rates and the continuation of supportive monetary policy. Over half the population of Australia went into lockdown during July due to the spread of the Delta strain of COVID-19. The Australian Composite Purchasing Managers Index declined 23/08/2021 JANA Market Commentary - July 2021 | JANA Investment Advisers https://jana.com.au/insights/economic-influences/jana-market-commentary-july-2021 2/3 sharply, dropping to 45.2 (from 56.7 the previous month), the lowest result in over a year and largely impacted by government lockdown restrictions seeking to contain the recent rise in COVID-19 cases.

  The Australian equities market (S&P/ASX 300 Index) rose 1.1% in July, with mixed performance across sectors. Materials was the strongest performing sector (+7.1%), supported by a strong commodity prices and dividends, while the IT Sector (-6.4%) lagged. The Energy sector (-2.4%) dipped on concerns over excess capacity, adding to concerns about moderating global economic growth. Large Caps (+1.3%) outperformed Mid Caps (+0.6%) and Small Caps (+0.7%)
  over the month. 

  The Australian Dollar (AUD) fell against all major currencies over the month, including the Japanese yen (-3.2%), British pound (-2.7%), US dollar (-2.1%) and Euro (-2.1%), and also relative to the NZD (-2.0%). Government bond yields declined in July. The US 10-year yield continued its decline and fell 0.22% to end the month at 1.23% while the Australian 10-year yield fell from 1.53% to 1.18%.

  

  Source: Factset/Jana

• Market 2020/21 Financial Year Commentary June 2021

  Unprecedented Policy Response and Reflation

  At the onset of the financial year, risk markets were in the midst of their recovery from the sharp sell-off that occurred in early 2020, despite the ongoing impact of COVID-19. The strong investor sentiment was largely driven by the unprecedented fiscal and monetary support being injected into the global economy, and was reinforced by a change in approach by the Federal Reserve, as it introduced average inflation targeting in setting policy interest rates, allowing for temporary overshoots in inflation above its 2% target.

  Towards the end of 2020, equity markets rallied to all-time highs as positive news regarding the three leading COVID-19 vaccine candidates was announced. The developments coincided with Joe Biden’s win in the US Presidential election, who then announced a $900 billion stimulus package in late December.  Similarly, EU leaders approved a €1.8 trillion budget package to dampen the economic impact of the pandemic, as case numbers continued to climb rapidly in the region. At the same time, a Brexit trade deal between the UK and the EU was finally agreed, ending years of political stalemate and instability.

  The roll out of vaccines, coupled with the accommodative financial conditions, drove one of the largest equity style rotations in recent times beginning in late 2020. Strong investor confidence from the positive global growth outlook resulted in higher long-term interest rates and a steepening of yield curves, which provided a tail wind for ‘value’ and more cyclical stocks at the expense of higher multiple ‘growth’ stocks. The prospect of higher inflation expectations was priced in by investors, which rattled bond markets, sharply pushing up bond yields in early 2021. This prompted the Federal Reserve Chairman, Jerome Powell, to ease investor jitters by reiterating that interest rates will remain low for a long period of time. This coincided with President Biden announcing a fiscal stimulus package of $1.9 trillion with an additional $2.0 trillion in infrastructure spending.

  While global demand rebounding and supply constraints persisting, the fear of surging inflation saw the median expectation of Federal Reserve Board members for the timing of a rise in interest rates brought forward to 2023. The progress of the vaccine rollouts in major economies and ongoing stimulus helped to improve economic indicators, with the OECD stating that the global economy has returned to its pre-pandemic activity levels with global economic growth of 5.8% expected for the 2021 calendar year. This positive news provided further support to equity markets, which was only dampened by the emergence of the COVID-19 delta variant, which weighed down investor sentiment late in the financial year given its potential impact on the pace of the global recovery.

  Domestically, the economic outlook continued to improve over the year, especially once the long lockdown in Melbourne ended in late 2020, supported by the ongoing accommodative fiscal and monetary policy and high commodity prices.  Encouraging job figures were released by the ABS, where in the month of November alone around 90,000 jobs were created. This was in addition to the RBA reducing the cash rate from 0.25% to 0.10%, while announcing a quantitative easing program of $100 billion. Strong job creation continued its trajectory into the new calendar year, as the unemployment rate fell sharply, despite the JobKeeper program ending in March.

  Global Equities
  The improved economic and earnings outlook and ongoing stimulus measures saw global equities rally strongly over the year, with the MSCI World Index ex-Australia (hedged to AUD) up 36.4%. Unhedged returns were 28.1%, lower than the hedged returns due to the appreciation of the Australian dollar against most of the major currencies. Emerging markets outperformed developed markets on an unhedged basis with the MSCI Emerging Markets Index posting a strong gain of 29.6%. The rotation into ‘value’ and cyclical stocks that began in late 2020 continued its momentum until June, where it then meaningfully detracted as concerns grew around the severity of the new COVID-19 strain and its potential impact on economic growth.

  Australian Equities
  The S&P/ASX300 Index delivered 28.5% over the financial year, driven by the same positive factors experienced globally. Optimism within markets was spurred on by positive job creation news, surging iron ore prices, the easing of lockdown restrictions and ongoing monetary and fiscal stimulus, including the Government’s pledge to support the local economy, as it unveiled a $96 billion stimulus package over five years in its May Budget.

  Property
  In the property sector, listed Australian Real Estate Investment Trusts (AREITs) returned 33.9% and Global REITs returned 31.4% (hedged to AUD) over the financial year, moving up with the broader equity markets and as property valuations priced in an economic recovery. Australian unlisted property lagged its listed counterpart, returning 8.3% over the year. There was a wide dispersion between the performance of the major sectors, with Industrial strongly outperforming Office and Retail.

  Fixed Interest
  Bond markets were volatile over the year, finishing slightly negative, as yields sharply rose off a historically low starting base. The risk-on sentiment saw the yield curve steepen materially in early 2021, as investors factored in rising growth expectations, driving the 10-year US Treasury yield up from 0.91% to 1.74%. This was later tempered as the Federal Reserve shifted to a hawkish tone for the outlook in interest rates, amidst rising inflation expectations. The US and Australian 10-year bond yields ended the year at 0.87% and 0.65%, respectively.

  

  

  Source: Factset/Jana

• Market Quarterly Commentary June 2021

  Global equities had a strong June quarter, buoyed by considerable Covid-19 vaccination progress, led by the US and UK and followed closely by Europe and China. Global supply constraints, a strong rebound in demand and record government stimulus measures continued to drive inflation higher over the quarter, although question marks remain over how sustained or transitory this trend will ultimately prove to be. Government bond yields declined over the quarter following their rise in the March quarter. At the Federal Reserve meeting in June, the ‘dot plot’ projections of the Board members indicated that the first interest rate hike is likely to come in 2023.

  In the US, the S&P 500 Index reached an all-time high, gaining 8.4% over the June quarter. Although the Federal Reserve meeting in June indicated that interest rates could rise earlier than previously planned, Chairman Jerome Powell has since emphasised that borrowing costs will remain low for a long time and supportive monetary and fiscal policy efforts are expected to remain in the near term. The US economic recovery remained on track with March quarter GDP growth of 6.4% and a Composite Purchasing Managers Index (PMI) reading of 63.9 in June, indicating significant confidence and expansion in both the manufacturing and services sectors. In late June, the US Senate passed a stimulus package worth approximately US$1.2 trillion to upgrade infrastructure over the next eight years, although the package remains dependent on the passage of a separate spending package, thought to be in the region of US$6 trillion.

  Eurozone equity markets were also positive over the quarter, with a marked improvement in the pace of the Covid-19 vaccination roll-out and strong corporate earnings the main drivers. New cases largely fell in the region over the quarter, permitting the loosening of restrictions and increasing social and economic activity. Economic data was strong over the quarter with the Eurozone Composite PMI rising to 59.2 in June, its highest level since June 2006. The European Commission also signed off on Spain and Portugal’s national recovery spending plans, which are to be funded from the €800bn European Recovery Fund.

  In the UK, markets rose over the quarter, driven by an update to GDP forecasts, despite a pull back in June amid rising Covid-19 infections and concerns over the delta variant impacting re-opening plans. Travel, leisure, and the retail sectors were the main laggards in June as the UK Government delayed the lifting of social distancing requirements. Despite this drawback, the headline growth for UK equities was strong as value stocks continued their rally and Small Caps and Mid Caps outperformed.

  The MSCI World Index ex-Australia (hedged into AUD) rose 7.7% over the quarter. Amongst the developed markets, Denmark (12.1%) and Austria (10.9%) outperformed, whilst New Zealand (-4.8%) and Portugal (-0.9%) were the weakest performing countries in local currency terms. The depreciation of the Australian dollar against the major currencies resulted in higher unhedged returns (9.5%). The MSCI Emerging Markets Index (6.6%) underperformed unhedged developed markets.

  In Australia, unemployment declined from 5.5% in April to 5.1% in May, equalling the February 2020 pre-pandemic figure. This strong growth in employment has cushioned the expiry of the JobKeeper programme with consumption spending able to rebound strongly as a result, notwithstanding the Covid-19 related restrictions imposed in New South Wales in June. Recent activity data in Australia has been better than expected, with GDP growth now forecast at 4.75% over 2021 and 3.25% over 2022. Business conditions remain favourable with high commodity prices, low interest rates and tax incentives supporting the recovery. The RBA left interest rates at the historic low of 0.25% in June.

  The Australian equity market recorded an increase of 8.5% over the quarter, amid some dispersion in performance across the main sectors. Energy (-2.2%) and Utilities (-4.5%) were the main laggards, while IT (+12.1%), Telecommunication Services (+11.1%) and Consumer Discretionary (+11.6%) led the market. Mid Caps (+10.1%) outperformed Small Caps (+8.5%) and Large Caps (+8.2%).

  The Australian Dollar depreciated against the major currencies over the quarter, falling relative to the US Dollar (-1.4%), Japanese Yen (-1.0%), the British Pound (-1.6%) and the Euro (-2.3%).

  Bond markets produced positive returns over the quarter given the fall back in yields.  The US and Australian 10-year bond yields ended the quarter at 1.45% and 1.53% respectively.

  

  

  *Q2 2021 returns for Unlisted Property are best estimates and subject to change

  Source: Factset/Jana

• Market Commentary June 2021

  Most major equity markets posted positive returns in June, as the majority of developed economies saw vaccination campaigns accelerate. The vaccination rollout across emerging economies continued to lag, with COVID-19 infection rates growing rapidly in India while case numbers remained low in China. The fast-spreading Delta variant of the coronavirus is of significant concern across the globe, forcing a number of countries into further lockdowns. Over the month of June, US 10-year Treasury yields dropped by 0.13% to 1.45%, with the decline in yields supporting growth stocks to outperform value stocks.

  In the US, the Federal Reserve (the Fed) indicated a sooner-than-expected interest rate hike in 2023, becoming slightly more hawkish and acknowledging that tapering is being discussed. The Fed noted it generally expects elevated inflation for the remainder of the year, as Chairman Jerome Powell acknowledged inflation pressures are stronger and more persistent than he had anticipated. Economic data was strong in the US, posting an annualised growth rate (GDP) of 6.4% in the March quarter while the Consumer Price Index (CPI) increased by 5.0% year on year. This contrasted with China, where concerns of the recent tightening of regulations in the technology sector being broadened to other sectors, policy tightening and a stronger US dollar weighed on China’s relative performance. In other emerging economies, continued investor optimism led to positive equity returns despite renewed concerns over the timing of global monetary policy tightening, although this was more muted towards the end of the month as a resurgence in infection rates and lockdowns due to the Delta variant weighed on investor sentiment.

  The MSCI World Index ex-Australia (hedged into AUD) rose 2.4% over June. In developed markets, Switzerland (+4.9%), Denmark (+4.8%) and New Zealand (+3.8%) outperformed the broader market, while Portugal (-4.4%), Spain (-2.5%) and Hong Kong (-1.8%) underperformed. Hedged returns were lower than unhedged returns (+4.7%) as the Australian Dollar depreciated relative to major currencies over the month. The MSCI Emerging Markets Index (unhedged) rose by 3.3%, underperforming unhedged developed markets (+4.7%).  Colombia (+6.4%) and the Philippines (+4.5%) were the strongest markets, while Peru (-11.9%) was the weakest.

  In Australia, equity markets rose over the month despite the growing concerns around the more contagious Delta variant of the virus. The local market continued to be supported by the strength in commodity prices, as supply pressures and the return of industrial demand saw most markets tighten. However, segments of the commodity market reacted to the Fed’s hawkish shift, with copper and gold experiencing the largest declines. The Reserve Bank of Australia (RBA) made no changes to monetary policy at its June meeting, but discussed how it might revise its bond purchase (quantitative easing) programme.

  The Australian equities market (S&P/ASX 300 Index) rose 2.3% in June, with generally positive performance across sectors. Information Technology (IT) was the strongest performing sector (+12.4%), supported by a decline in bond yields and a robust earnings season, while the Financials sector (-0.2%) was the key detractor.  Mid Caps (+3.7%) and Small Caps (+3.1%) outperformed Large Caps (+1.9%).

  The Australian Dollar (AUD) fell against most major currencies over the month, depreciating against the US dollar (-3.0%), Japanese yen (-1.6%) and British pound (-0.2%), was steady relative to the Euro and appreciated against the NZD (+1.0%). The US 2-year yield rose over the month of June, while the US yield curve flattened by the most since January 2015, after the Fed’s hawkish shift. Most other bond yields were muted over the month.  The US 10-year yield moved from 1.58% to 1.45% and the Australian 10-year yield fell from 1.66% to 1.53%.

  

  

  Source: Factset/Jana

• Market Commentary May 2021

  Global equity markets posted a fourth straight month of gains, the longest streak since August 2020 as investor optimism continued to prevail in May. Progressive vaccine rollouts, ongoing stimulus and improving economic indicators outweighed increased COVID-19 infection rates in parts of the world and ongoing inflation fears.

  The US and European countries continued to gain traction in their vaccination programs whilst India faced an increasing humanitarian crisis, with infections surpassing 20 million cases and as cyclones hampered local efforts to control the outbreak. According to the OECD, the global economy has returned to pre-pandemic activity levels, with expected growth of 5.8% this year and 4.4% next year, up from the March estimates of 5.6% and 4.0% respectively.

  In the US, the Federal Reserve’s (the Fed) preferred measure of inflation, the Core Personal Consumption Expenditure Price Index, rose 0.7% in April, the largest monthly increase since 2001, whilst the year-on-year increase of 3.1% similarly broke records as the largest annual rise since 1992. Fed officials brushed off market concerns that the higher than expected measure would prompt a potential tightening of monetary policy, with repeated statements that the increase would be transitory and reaffirmation of their tolerance for inflation to sit above 2% for some time. Other macroeconomic indicators were mixed, with the Composite Purchasing Managers Index rising to 63.5, a clear sign of improving business confidence, contrasting with disappointing employment data. A less than expected 266,000 jobs were added in April and the unemployment rate edged up to 6.1%.

  The MSCI World Index ex-Australia (hedged into AUD) rose 1.0% over May. In developed markets, Italy (+5.0%), Canada (+3.6%) and Switzerland (+3.6%) outperformed the broader market, while New Zealand (-9.5%) and Singapore (-0.8%) underperformed. Hedged returns were lower than unhedged returns as the Australian Dollar depreciated relative to major trading partners over the month. The MSCI Emerging Markets Index (unhedged) rose by 2.1%, outperforming unhedged developed markets (+1.3%), supported by rising commodity prices and a weaker US Dollar. India (+6.6%) and Brazil (+6.1%) were key drivers of the outperformance of emerging markets.

  In Australia, equity markets rose over the month despite the onset of Victoria’s COVID-19 outbreak and the double-digit decline of local tech stocks Afterpay, Appen and Nuix. The gain extended the run of monthly gains to eight months, the longest stretch since 2007. The local market was supported by the continued strength in iron ore prices, low interest rates, a weaker currency and big spending unveiled in the May budget to the tune of $96 billion in stimulus over five years. The Reserve Bank of Australia made no changes to monetary policy at the May meeting, noting that despite a pick-up in business investment and household spending alongside declining unemployment, inflation pressures remain subdued.

  The Australian equities market (S&P/ASX 300 Index) rose 2.3% in May, with generally positive performance across sectors. The top performing sectors were Financials (+5.7%) and Health Care (+3.5%), while IT (-9.1%) and Utilities (-6.6%) were the key detractors. Large Caps (+2.9%) outperformed Mid Caps (+0.9%) and Small Caps (+0.3%).

  The Australian Dollar was mixed against the major currencies over the month, appreciating against the USD (+0.2%) and JPY (+0.3%) but depreciating against the GBP (-2.4%) and Euro
  (-1.3%). Bond yields were muted over the month. The US 10-year yield fell 0.05% to 1.58% and the Australian 10-year yield fell 0.03% and finished the month at 1.66%. The fall back in yields delivered incrementally positive returns for bonds over the month.

  

  Source: Factset/Jana

• Market Commentary April 2021

  Equity markets continued to rise over April as prospects for vaccine supply improved, the loosening of social restrictions continued in many countries and with the announcement of more planned fiscal spending in the US. In large part, developed market equities responded positively to the potential for additional fiscal stimulus by the US with the Biden Administration proposing two more spending packages: the US$2.3tn American Jobs Plan and the US$1.8tn American Families Plan. Elsewhere, European countries, after a difficult start to their vaccine campaign and struggling to contain recent COVID-19 outbreaks, have seen the pace of vaccination accelerate significantly.

  In the US, the vaccine rollout continued to gather momentum. The pace of US jobs growth continued to accelerate as March saw 916,000 jobs added and the unemployment rate fall to 6.0%. The Biden Administration’s fiscal spending proposals are intended to invest in the country’s infrastructure and ensure a more equitable recovery through an expansion of social safety nets. The Administration plans to increase corporate tax rates from 21% to 28% and raise capital gains taxes to pay for the proposed spending plans. On the monetary policy front, Federal Reserve Chairman, Jerome Powell, dismissed inflation fears as being largely due to transitory factors despite a strong rebound of the US economy and reiterated that there would be no increase in interest rates for “some time”.

  The MSCI World Index ex-Australia (hedged into AUD) rose 4.1% over April. In developed markets, the US (+5.4%) and Israel (+4.8%) outperformed the broader market, while Japan (-2.6%) and Switzerland (1.3%) underperformed. The MSCI Emerging Markets Index (unhedged) rose by 1.1%, underperforming unhedged developed markets (+3.2%) and was weighted down by the relative underperformance of China (1.2%) and India (0.4%). Hedged returns were higher than unhedged returns as the AUD appreciated against the USD over the month.

  In Australia, equity markets rose but underperformed hedged overseas equities. Australian markets were supported by continued strong consumer and business sentiment surveys. The Reserve Bank of Australia (RBA) left its cash rate intact and noted that a stronger than expected economic recovery was well under way but that the Bank would not raise the cash rate until inflation is sustainably within its 2-3% target range.

  The Australian equities market (S&P/ASX 300 Index) rose 3.7% in April, with generally positive performance across sectors. The top performing sectors were IT (+9.8%) and Materials (+7.5%), while Energy (-4.7%) and Consumer Staples (-2.4%) were the key detractors. Large Caps (+3.2%) underperformed Mid Caps (+5.3%) and Small Caps (+5.0%).

  The Australian Dollar was mostly positive against the major currencies over the month, appreciating against the USD (+1.4%), JPY (+0.3%) and GBP (1.1%) but depreciated against the Euro (-1.0%). Australian and US Government bond yields fell over the month, continuing to fall back from the sharp rise earlier this year. The US 10-year yield fell to 1.63% and the Australian 10-year yield finished the month at 1.69%. This fall back in yields contributed to positive returns for bonds over the month.

  

  Source: Factset/Jana

• Market Commentary March 2021

  Despite an increase in Covid-19 infections and some difficulties in the rollout of vaccines in Europe, equity markets continued higher over March. In large part this was due to 1.9T in US stimulus that passed through the senate and a stronger than expected jobs increase in the US. Elsewhere, European markets moved higher as the relative value of European markets proved attractive for investors in a rising rates environment. Bond markets were the most notable movers over the month with US 10 year treasury yields rising 28bp over the month as investor inflation expectations increased.

  In the US, the vaccine rollout continued to gather momentum as 97m Americans now have at least one dose of the vaccine. Government Stimulus worth 9% of US GDP also passed the senate in March. Added to this the Biden administration doubled their commitment from 100m to 200m vaccination doses in the first 100 days. These factors, in addition to a Federal Reserve that reiterated its commitment to its asset purchasing program, has contributed to market GDP growth forecasts of 7% for 2021. By contrast, Europe has been hit with a third wave of Covid-19 and had its rollout of vaccinations stifled over the month. Europe was however supported by strong manufacturing PMIs reported over the month.

  The MSCI World Index ex-Australia (hedged into AUD) rose 4.3% over March. In developed markets, Germany (7.5%) and Italy (+8.1%) outperformed the broader market, while Finland (1.6%) and the US (3.8%) underperformed. The MSCI Emerging Markets Index (unhedged) rose by 0.1%, underperforming unhedged developed markets (+5.1%) and was particularly weighted down by the underperformance of China (-6.0%). Hedged returns were lower than unhedged returns as the AUD depreciated against the USD over the month.

  In Australia, equity markets rose but underperformed the rise in global equities. Australian markets were supported by strong consumer and business sentiment numbers. Furthermore, a stronger than expected labour market report allayed fears that the end of JobKeeper stimulus would slow economic growth.

  The Australian equities market (S&P/ASX 300 Index) rose 2.3% in March, with mixed performance across sectors. Information Technology (-2.7%) and Materials (-3.1%) were the key detractors. The top performing sectors were Utilities (+6.8%) and Consumer Discretionary (+6.7%). Financials (+4.3%) also outperformed, driven largely by the big four banks which benefitted from strong economic growth and accelerating house price growth. Large Caps (+2.2%) underperformed Mid Caps (+2.7%) but outperformed Small Caps (+0.8%). Australian REITs (6.3%) outperformed both the broader equity market and hedged Global REITs (+4.0%).

  The Australian Dollar was mixed against the four major currencies over the month, appreciating against the Euro (+1.6%) and JPY (+2.0%) but depreciating against the USD (-1.6%) and GBP (-0.3%). The US government bond yield rose sharply over the month compared to Australian bond yields which gave back some of the strong February gains. The US 10 year-yields rose to 1.74% and Australian 10-year yield finishing the month at 1.79%.

  

  Source: Factset/Jana

• Market Quarterly Commentary March 2021

  Global equities markets were positive over the quarter, with the impact of improving economic data more than counteracting market fears of a rise in inflation and the prospect of central banks raising rates earlier than they have indicated. This sentiment drove government bond yields higher and bond markets experienced negative returns during the quarter.  More broadly, vaccine availability has driven a divergence between countries in their control over the pandemic. Europe and Japan have suffered from increasing ‘third wave’ infections leading to further lockdowns, while in the US and UK the vaccine rollout has largely been successful in vaccinating millions and infection rates in those countries have been on a steady decline.

  In the US, the S&P 500 Index gained 6.1% in the March quarter. At the beginning of the quarter the US equity market declined, with the Federal Reserve warning that the pace of the US economic recovery had weakened. But as COVID-19 infections continued to trend lower and the vaccine rollout accelerated, fears of a weaking economy were replaced with fears that a rapid recovery would lead to inflation and US Federal Reserve (Fed) policy tightening. However, worries that higher inflation would trigger the Fed to raise interest rates sooner than expected were pushed back when Fed Chairman Jay Powell confirmed that interest rates will remain low for a sustained period.

  At its Federal Open Market Committee (FOMC) meeting in March, the Fed left its policy settings unchanged and upgraded its forecasts for economic activity, with the real GDP forecast increased from the December projection of 4.2% to 6.5% for calendar year 2021 and the unemployment rate forecast to drop to 4.5% by the end of the year. The passing of the US$1.9 trillion stimulus package in March also renewed confidence in continuing fiscal support for the economy and drove equity markets higher. As part of the package, immediate stimulus payments to households of up to US$1,400 were disbursed towards the end of March. Employment, retail sales and industrial production are all set to be supported by what has been one of largest stimulus packages in US history.

  Eurozone markets were positive over the quarter, even as increasing infection rates from the more virulent UK strain of COVID-19 spread throughout continental Europe and forced many countries in the region back into lockdown.  Concerns over the supply and distribution of vaccines increased geopolitical tensions, with the European Commission blocking shipments of the AstraZeneca vaccines to non-EU countries, including Australia.  Economic data across the region showed some positive signs such as improvements in the Euro Zone Economic Sentiment Index and a rise in the Eurozone composite Purchasing Managers Index from 47.8 in January to 48.8 in February.  However, this was offset by a continuing weak labour market and sluggish retail sales.

  In the UK, lockdowns were instituted in January to stem the outbreak of the UK strain of the virus and remained in place throughout most of the quarter, with a gradual rollback in March as infection rates and deaths declined. Despite this, there were signs of economic recovery, with consumer confidence and retail sales picking up. Additionally, the vaccination campaign continued to progress remarkably well and had reached over 30 million people by the end of March with more than half the adult population vaccinated with at least the first dose.

  The MSCI World Index ex-Australia (hedged into AUD) rose 6.3% over the quarter. Amongst the developed markets, Sweden (18.3%) and the Netherlands (15.7%) outperformed the broader developed markets, whilst New Zealand (-8.0%) and Portugal (-0.3%) were the weakest performing countries in local currency terms in the MSCI World Index. The MSCI Emerging Markets Index (3.7%) underperformed unhedged developed markets (6.5%).

  In Australia, unemployment declined from 6.3% in January to 5.8% in February, while the participation rate remained steady at 66.1%. However, the underemployment rate increased from 8.1% to 8.5%, above pre-pandemic levels of 8.2%. At the end of March, the $90bn Job Keeper wage subsidy scheme officially ended, which at its peak supported up to 3.6 million jobs. Estimates modelled by Treasury expect that up to 150,000 jobs could be lost as a result. However, business conditions improved over the quarter, with a rise in employment levels and increasing profitability. The growing confidence on improving business conditions drove the National Australia Bank (NAB) Monthly Business Survey index for February to its highest level since 2010. GDP in the December quarter was stronger than expected at 3.1%, driven by a lift in household consumption.

  The Australian equity market recorded an increase of 4.2% over the quarter, amid wide dispersion in performance across the main sectors. Information Technology (-10.3%) and Healthcare (-2.1%) were the weakest, while Financials (12.1%) and Telecommunication Services (9.0%) led the market. Mid Caps (0.7%) and Small Caps (2.1%) underperformed large cap stocks (6.3%) over the quarter.

  The Australian Dollar was mixed over the quarter, appreciating against the Euro (2.8%) and Japanese Yen (5.6%) but depreciating against the US Dollar (-1.3%) and the British Pound (-2.2%).

  Bond markets were negative over the quarter given the sharp rise in yields.  The US and Australian 10-year bond yields ended the quarter at 1.74% and 1.79% respectively.

  

  

  Source: Factset/Jana

• Market Commentary February 2021

  The drop in infections and the rapid vaccination rollout continued to drive markets higher in February. Equity markets closed the month with positive returns, despite a drop towards the end of the month. Increased government spending to combat the economic fallout of the pandemic led to a fear of inflation that unsettled the financial markets by month-end. Nerves over the inflation outlook rattled bond markets, pushing yields sharply higher.

  In the US, new Covid-19 infections continued to trend down and the vaccine rollout accelerated, driving US Equities to record highs. Towards the end of the month, inflation jitters prompted fears that a rapid economic recovery would hasten policy tightening, which shook bond markets before rippling into equities, especially the IT sector. However, worries that higher inflation would trigger the US central bank to raise interest rates sooner-than-expected were pushed back when Federal Reserve Chairman Powell confirmed that interest rates will remain low for longer.

  Eurozone equities gained in February. Economic data across the region showed positive signs as the Eurozone composite PMIs rose to 48.8 (47.8 in January). In Italy, the formation of a new government led by Mario Draghi, the former European Central Bank president, was approved by a large majority in parliament, avoiding the undesirable scenario of snap elections during a pandemic. In the UK, the vaccination campaign continued to progress remarkably well and had reached 20 million people by the end of February. UK equities performed well, reversing some of the underperformance suffered during the global pandemic’s initial stages.

  The MSCI World Index ex-Australia (hedged into AUD) rose 2.7% over February.  In developed markets, Italy (+5.8%) and Spain (+5.3%) outperformed the broader market, while Finland (-1.1%) and Belgium (-1.0%) underperformed.  The MSCI Emerging Markets Index (unhedged) fell by 0.1%, underperforming unhedged developed markets (+1.7%).  Hedged returns were higher than unhedged returns as the AUD appreciated against the USD over the month.

  In Australia, equity markets rose but underperformed the rise in global equities. The Australian earnings season was strong in aggregate but could not offset the rise in yields and broader investors’ worries. The yield on Australian 10-year government bonds rose to 1.88% at month end despite the unchanged stance on easy monetary policy. Rising inflation expectations on the back of stronger commodity prices, a stronger Australian dollar and the large fiscal stimulus package all added to the sell-off in government bonds. Business confidence climbed four points to +16 points in February, levels last seen in 2010.

  The Australian equities market (S&P/ASX 300 Index) rose 1.5% in February, with mixed performance across sectors.  Information Technology (-8.0%) and Utilities (-8.0%) were the key detractors.  The top performing sector was Materials (+7.1%), which was driven by rising commodity prices.  Financials (+5.1%) also outperformed, driven largely by the big four banks which benefitted from higher yields.  Large Caps (+2.0%) outperformed both Mid Caps (-1.3%), Small Caps (+1.5%) and the broader index (+1.5%).  Australian REITs (-2.5%) underperformed both the broader equity market and hedged Global REITs (+3.9%).

  The Australian Dollar was mostly positive against the four major currencies over the month, appreciating against the USD (+0.9%), Euro (+1.0%) and JPY (+2.7%) but depreciating against the GBP (-0.9%). Major bond yields rose over the month, with US 10 year-yields rising to 1.46% and Australian 10-year yields finishing the month at 1.88%.

  

  

  Source: Factset/Jana

• Market Commentary January 2021

  Most asset classes were flat to negative across the month of January, with emerging market equities the notable exception. Following a strong start to the month, most equity markets gave back their gains as the month ended.  Initially, the global rollout of COVID-19 vaccines and the prospect of further fiscal stimulus from a Democratic controlled Congress boosted market optimism, but significant disruption in the supply of vaccines to the EU and increased volatility arising from a coordinated short-squeeze by retail investors soon tempered sentiment.

  US equity markets declined over January with the Federal Reserve warning that the pace of the US economic recovery had weakened. Despite this news, the US equity sell off towards the end of the month is best explained by abnormal retail investor activity. As small and heavily shorted stocks rallied, some hedge funds were forced to close out their short positions and sell some of their long positions in order to raise capital, resulting in a modest, technically-driven market sell off.

  Eurozone and UK equity markets also posted negative returns in January. Across the Eurozone, a disruption in vaccine supply to the EU raised serious concerns, whilst political unrest in Italy compounded negative sentiment across the region. In the UK, the vaccine rollout picked up speed, although prolonged lockdown restrictions led to a decline in economic activity.

  The MSCI World Index ex-Australia (hedged into AUD) (-0.8%) fell over January.  In developed markets, Sweden (3.7%) and the Netherlands (3.0%) outperformed the broader market, while Germany (-8.5%) and Italy (-3.2%) underperformed. The MSCI Emerging Markets Index (unhedged) rose by 3.7%, outperforming unhedged developed markets (-0.4%). Unhedged returns were marginally higher than hedged returns as the AUS weakened against the USD over the month.

  In Australia, equity markets outperformed peers as positive economic data boosted returns.  December quarter inflation exceeded expectations (+0.9%), whilst employment rose and the unemployment rate fell to 6.6%. Despite largely positive news, business confidence fell due to the Covid-19 related sporadic lockdowns and border restrictions seen across much of the country during December.

  The Australian equities market (S&P/ASX 300 Index) rose 0.3% in January, with mixed performance across sectors.  Real Estate (-4.1%) and Industrials (-3.1%) were the key detractors.  The top performing sector was Consumer Discretionary (+4.8%), which was driven by strong retail sales from Covid-19 beneficiaries.  Financials (+2.3%) also outperformed, driven largely by the big four banks which benefitted from positive global macro news and new loan growth.  Large Caps (0.7%) outperformed both Mid Caps (-1.1%), Small Caps (-0.3%) and the broader index (0.3%).  Australian REITs (-4.1%) underperformed both the broader equity market and Global REITs (-0.5%).

  The Australian Dollar was mixed against the four major currencies over the month, depreciating against the USD (-0.6%) and GBP (-1.0%), but rising against the Euro (0.1%) and JPY (0.8%).  Major bond yields generally rose over the month, with both the US and Australian 10-year yields finishing the month at 1.09%.

  

  

  Source: Factset/Jana