The end of financial year will soon be upon us. But once you get past…
Risk assets rose
- Global shares were up 1.8% and 0.4% in hedged and unhedged terms, respectively.
- Domestically, Australian shares underperformed international markets falling -0.4% during October. This was driven by a combination of falling iron ore prices hurting mining giants such as Rio Tinto and disappointing quarterly updates impacting the major banks.
- The Australian dollar (AUD) rose against major currencies on the firming prospects of US-China negotiations (an initial deal expected in December) as well as another interest rate cut by the Federal Reserve.
- Fixed income assets struggled slightly as investors became more optimistic on global growth prospects. Continued improvement in manufacturing PMIs has been a focus on this front as have positive leaks from US-China trade negotiations. This saw a rise in bond yields globally that resulted in negative bond returns for the month for both domestic fixed income and international fixed income.
With a trough nearing in global growth?
- Global business surveys are pointing to stabilisation with the Markit Global Manufacturing PMI entering expansionary territory led by China and the US.
- European economic growth surprised slightly at +0.2% while US growth remained positive albeit at a slower pace.
- Encouragingly in the US we saw a positive contribution from housing investment (after being a drag on growth in recent years).
- While positive we still remain cautious on global growth given weakness in US business investment and the Eurozone generally.
- The Reserve Bank of Australia (RBA) cut interest rates in early October by 0.25% to 0.75%.
- Recent RBA remarks and economic data have seen expectations for further rate cuts drop considerably.
- Expectations of unconventional policy appear to be rising with an Australian “quantitative easing” reportedly being contemplated by the RBA.
- Retail sales volumes disappointed, falling 0.1% during the September quarter.
- Weak sentiment saw consumers use the government tax refund to help pay down their debts according to the latest CBA quarterly update.
- The NAB Monthly Business Survey for October suggests subdued business conditions will continue in the near term.
- The unemployment rate fell slightly to 5.2% driven by a weaker participation rate (if participation remained constant it would have remained at 5.3% instead).
- We have also seen property markets continue to strengthen following the RBA rate cuts. This has prompted concerns from some observers over future financial risks from excessive household borrowing.
Major asset class performance
|Asset classes||1 month %||1 year %||5 years (p.a.) %|
|Global shares (hedged)||1.8||11.5||9.4|
|Global shares (unhedged)||0.4||15.8||13.1|
|Global small companies (unhedged)||0.7||10.8||12.6|
|Global emerging markets (unhedged)||2.0||15.1||8.1|
|Global listed property (hedged)
|Australian fixed income||-0.5||10.1||5.0|
|International fixed income||-0.3||9.7||4.7|
|Source: Bloomberg & IOOF, 31 October 2019
Indices used:Australian Shares: S&P/ASX 200 Accumulation Index, Global shares (hedged): MSCI World ex Australia Net Total Return (in AUD), Global shares (unhedged): MSCI World ex Australia Hedged AUD Net Total Return Index; Global small companies (unhedged): MSCI World Small Cap Net Total Return USD Index (in AUD); Global emerging markets (unhedged): MSCI Emerging Markets EM Net Total Return AUD Index; Global listed property (hedged): FTSE EPRA/NAREIT Developed Index Hedged in AUD Net Total Return; Cash: Bloomberg AusBond Bank Bill Index; Australian fixed income: Bloomberg AusBond Composite 0+ Yr Index; International fixed income: Bloomberg Barclays Global Aggregate Total Return Index Value Hedged AUD.
Please note: Past performance is not indicative of future performance.
|Exchange rates||At close on 31/10||1 month change %||1 year change %|
|Trade weighted index||60.0||1.4||-3.1|
|Source: Bloomberg & IOOF, 31 October 2019. All foreign exchange rates are rounded to two decimal places where appropriate.
Please note: Past performance is not indicative of future performance.
Disclaimer: This report has been prepared by the IOOF Research team for RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429. RI Advice Group Pty Ltd is a company within the IOOF group of companies consisting of IOOF Holdings Limited ABN 49 100 103 722 and its related bodies corporate. This report is current as at the date of issue but may be superseded by future publications. The information in the report may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of RI Advice Group Pty Ltd. This report may be used on the express condition that you have obtained a copy of the RI Advice Group Pty Ltd Financial Services Guide (FSG) from the website. RI Advice Group Pty Ltd and/or its associated entities, directors and/or its employees may have a material interest in, and may earn brokerage from, any securities or other financial products referred to in this report, or may provide services to the companies referred to in this report. This report is not available for distribution outside Australia and may not be passed on to any third person without the prior written consent of RI Advice Group Pty. RI Advice Group Pty and associated persons (including persons from whom information in this report is sourced) may do business or seek to do business with companies covered in its research reports. As a result, investors should be aware that the firms or other such persons may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision. This report has been prepared in good faith and with reasonable care. Neither RI Advice Group Pty nor any other person makes any representation or warranty, express or implied, as to the accuracy, reliability, reasonableness or completeness of the contents of this document (including any projections, forecasts, estimates, prospects and returns and any omissions from this document). To the maximum extent permitted by law RI Advice Group Pty, its related bodies corporate and their respective officers, employees, representatives and associates disclaim and exclude all liability for any loss or damage (whether foreseeable or not foreseeable) suffered or incurred by any person acting on any information (including any projections, forecasts, estimates, prospects and returns) provided in, or omitted from this report. General Advice Disclaimer: The information in this report is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this report, you should assess your own circumstances or seek advice from a financial adviser. Where applicable, you should obtain and consider a copy of the Product Disclosure Statement, prospectus or other disclosure material relevant to the financial product before you acquire a financial product. It is important to note that investments may go up and down and past performance is not an indicator of future performance.
For information regarding any potential conflicts of interest and analyst holdings; IOOF Research Team’s coverage criteria, methodology and spread of ratings; and summary information about the qualifications and experience of the IOOF Research Team please visit https://www.ioof.com.au/adviser/investment_funds/ioof_advice_research_process.