Market Commentary

Market Commentary

Asset class returns to 31 July 2021

Asset class	Calendar year-to-date	1 Month	3 Months	1 Year
Australian shares	14.1%	1.1%	5.8%	28.6%
Global shares (hedged)	14.0%	0.7%	4.0%	31.3%
Global shares (unhedged)	18.7%	2.8%	8.9%	29.9%
Emerging markets (unhedged)	5.2%	-4.7%	0.5%	17.7%
Australian property securities	10.6%	0.5%	7.9%	33.7%
Global property securities (hedged)	21.5%	3.9%	7.2%	33.6%
Global listed infrastructure (hedged)	9.4%	1.6%	1.3%	15.0%
Australian bonds	0.0%	1.8%	2.7%	0.5%
Global bonds (hedged)	-0.4%	1.3%	2.0%	0.1%
Global high yield bonds (hedged)	2.6%	0.0%	0.8%	7.9%
Australian inflation-linked bonds	1.8%	1.3%	1.7%	4.4%
Cash	0.0%	0.0%	0.0%	0.1%
AUD/USD	-4.7%	-2.1%	-4.8%	2.5%

_{Index data sources: Australian shares - S&P/ASX 200 Total Return Index; Global shares (hedged) - MSCI All Countries World (A$ hedged) ; Global shares (unhedged) - MSCI All Countries World; Emerging markets - MSCI Emerging Markets; Australian property securities - S&P/ASX 300 LPT Accumulation Index; Global property securities - FTSE EPRA/NAREIT Developed (A$ hedged); FTSE Global Core Infrastructure 50/50 (Hedged $A); Australian bonds - Bloomberg AusBond Composite 0+ Yr Index; Global bonds (A$ hedged) - BCGA Global Agg (A$ hedged); Global high yield bonds (A$ hedged) - Composite of BCGA US Corp HY BB/B (A$ hedged) & S&P LSTA BB/B Leveraged Loan Index; Australian inflation-linked bonds - Bloomberg AusBond Inflation Government 0+ Yr Index; Cash - Bloomberg AusBond Bank Bill Index, WM/Reuters Daily (4pm GMT).}

Global

Global shares (unhedged) continued their strong performance by delivering a return of 8.9% for the three months to July 2021.

Progress with vaccinations as well as supportive measures from governments and central banks were the key drivers of share market returns. Global economic data releases also provided encouragement. Positive business surveys and solid employment gains are consistent with the global recovery strengthening.

Wall Street surged to new record highs with the S&P 500 Index making a very strong 5.4% quarterly gain. US shares were buoyed by the expectation that corporate profits would record more than 60% annual growth in the June quarter. The US Federal Reserve also maintained guidance that interest rates would remain low but did signal consideration for tapering their bond purchase program later this year.

European shares made a strong 2.9% return (in local currency terms) with the steady vaccination rollout and gradual relaxation of lockdown restrictions. The European Central Banks guidance of continued low interest rates and bond purchases was also supportive for European shares.

Emerging market shares (unhedged) delivered a positive 0.5% gain for the quarter. In local currency terms, India delivered an exceptionally strong 9.3% gain with encouraging signs of lower virus cases. However Chinas share market delivered a disappointing -13.1% return due to increased government scrutiny of education and technology companies.

Global bonds (hedged) delivered a solid 2.0% return for the quarter. Government bond yields have fallen over recent months as central banks maintained their guidance of low interest rates despite higher inflation.

Global high yield bonds (hedged) also made a positive gain of 0.8% for the quarter. Credit spreads have narrowed given improving risk appetites due to the gains in global share markets and more promising economic indicators.

Australia

Australian shares generated a very strong 5.8% return for the past three months. Apart from the positive global and domestic economic prospects, low interest rates have been a significant tailwind to Australian shares. The Reserve Bank of Australia (RBA) has also provided encouraging guidance that the cash interest rate is expected to remain steady at 0.1% until 2024.

Australias Resource sector recorded an exceptionally strong 8.4% quarterly gain given high iron ore and metal commodity prices. Consumer Staples (9.5%) and Consumer Discretionary (7.6%) also benefitted with the view that jobs recovery would support spending. However, both the Energy (-0.4%) and Utilities (-1.9%) sectors disappointed.

Australias economy is showing optimistic signs of a sustained expansion with robust job gains and solid business and consumer confidence surveys. However, the lockdown experienced in Melbourne, Sydney and Brisbane are reminders of the continued virus threat until Australian vaccination rates are higher.

Looking forward

The global economy is showing positive signs of a strong and sustainable recovery. The combination of extensive fiscal and monetary policy support measures and steady progress in vaccinations across Europe and the US are promising. However, the virus remains a threat, particularly in emerging nations with limited access to vaccines. Hence increased vaccination rates across the world are still necessary to ensure that this global recovery does not falter.

 

_{Source: MLC MasterKey Investment Service Fundamentals}