INVESTMENT COMMENTARY

Market Comment from Local Super's Chief Executive - September Quarter

  Bad macro news weighs on markets A generally positive US corporate reporting season in early July was overtaken by negative macroeconomic news for the remainder of the September quarter. Share markets suffered their worst quarter since the financial crisis on the back of continuing fears concerning European sovereign debt issues with Standard & Poors’ downgrading of US sovereign debt from AAA to AA+. This was in addition to continuing fears of a ‘double dip’ US recession amidst fears of a faster than anticipated slowdown in China. This caused double digit declines across most share markets over the quarter, capping off a very volatile period as investors dumped commodities, cyclically exposed stocks, and generally moved to the safe haven of government bonds and the $US.

Global equities were significantly down over the quarter on a hedged basis (-14.3%), and with the $A significantly weakening against the $US, unhedged returns (in $A) fared relatively better (-7.9%). Apart from New Zealand, not one country in the MSCI Developed Market Country Indices in local currency terms reached positive territory for the quarter. Austria, Greece, and Italy fared worst, while Australia, Canada, Japan and the United Kingdom fared better. With the exception of the Consumer Staples sector, all of the market sectors posted negative returns in unhedged terms. Energy, Materials, Industrials and Financials fared the worst on the back of concerns about a global slowdown and European banks’ exposure to peripheral European sovereign debt. Consumer Staples, Health Care, Telecoms, and Utilities fared best during a period where defensive stocks generally outperformed cyclicals.

 

Australian shares finished the quarter down (-11.7%). The themes driving the Australian market were largely consistent with the main themes globally. In a period where bearish sentiment and bad macroeconomic news drove markets, defensive stocks excelled. Telecomms was the only positive performing sector, while Consumer Staples and Utilities fared much better than Energy, Materials and Consumer Discretionary. Not surprisingly, Resources performed poorly due to concerns about a China slowdown and the consequent impact on commodity prices. Small companies marginally underperformed large caps. Listed Property Trusts had a difficult quarter, but finished ahead of the broader Australian stock market. Unlisted Property posted a positive return for the quarter with returns largely reflecting income.

 

Short-term interest rates in developed economies remain low and bond yields have continued to tighten as investors move into the asset class as a defensive ploy. Since 30 June 2011, the 10 year yields of Australian, Euro area, UK and US government bonds have declined by 1.0%-1.2%. Longer duration bonds were the standout performers over the quarter, with many long duration indices recording high single digit returns over the quarter.

 

Subsequent to quarter end, global investment markets continued to decline but have subsequently rallied on the prospect of Eurozone government support for Eurozone banks potentially affected by continuing sovereign debt concerns. Despite strong corporate balance sheets, bad macroeconomic news continues to weigh on markets and investors should expect volatility to continue for the time being.

Source: September 2011 JANA Investment Commentary

 

Nic Szuster
Chief Executive

 

Monthly Investment Commentary from JANA

 

Investment commentary is provided monthly by our investment consultant, JANA Investment Advisers. Below are the Investments Commantaries for the past 4 months.

• January 2012
• December 2011
• November 2011
• October 2011

The Investment Commentary Archive stores the previous year's market update reports.