Despite oil prices moving higher, September delivered a month of strong performance from global markets as investors put aside fears that economic growth would be stifled following hurricane activity in the US. For the month of September, the MSCI World ex Australia Index (hedged into $A) rose 3.4%. The MSCI World ex-Australia Index (unhedged) rose 0.8% over the same period. The S&P/ASX300 Index rose 5.1% in September.
The Reserve Bank of Australia kept interest rates on hold at 5.5% for the sixth consecutive month at its September board meeting. June quarter GDP data showed that economic growth has rebounded strongly with reliance shifting away from housing and the consumer towards business investment and net exports. Westpac/Melbourne Institute’s consumer sentiment index fell significantly in September as the impact of rising oil prices overshadowed the recent run of strong local economic data. The Australian equity market performed well in September, driven by positive economic data releases that boosted investor confidence and strength in resource stocks. The best performing sectors were Materials (+ 10.0%) driven higher by mining stocks on the back of a predicted 40% increase in iron ore prices, and Energy (+ 7.0%) as a result of continued strength in oil prices following disruptions caused by hurricanes Katrina and Rita. The worst performing sectors were Telecommunications (- 11.0%) following profit warnings from Telstra and Singapore Telecommunications, and Information Technology (- 1.0%).
Global share markets experienced strong performance in September, as fears of subdued economic growth following the devastating impact of recent hurricanes were put aside. The US Federal Reserve raised the Fed funds rate by a further 0.25% to 3.75% and indicated that rates were expected to increase at a measured pace. |
Minutes of the Central Bank’s meeting on September 20 indicated that Federal Reserve policy makers have become more concerned about inflation after hurricane Katrina and that interest rates probably will have to move higher in order to restrain prices. The Japanese economy’s continued strong performance has raised the possibility that Japan will emerge from deflation in the near future. Similarly, Chinese economic growth continued unabated, although it is increasingly imbalanced with exports surging while domestic demand indicators remain flat. An expected decline in US consumer demand in response to gasoline price hikes leaves the Chinese economy vulnerable to slower export growth.
Australian Bond market yields were driven higher by stronger than expected domestic economic data with employment growth reporting another strong surge and retail sales beating expectations. Australian fixed interest returned -0.6% as measured by the UBSA Composite All Maturities Bond Index. A rise in nominal bond yields was mirrored in the Inflation Linked Bond market. Global government yields rose in September also on the back of stronger than expected economic data as well as market sentiment surrounding the US economy. The increase in yields lead to a return of -0.3% for global fixed interest markets, as measured by the Lehman Global Aggregate Bond Index (hedged into $A).
The Australian listed property sector posted flat returns during September, with the S&P/ASX 300 Listed Property Index rising just 0.03%. The strongest performer was the industrial trust sector (+ 2.5%) driven by good performance from ING Industrial (+ 7.1%), while the retail trust sector posted negative relative returns (- 2.1%) due to poor performance by the Westfield Group (- 3.6%) on the back of concerns that management may cut or reduce dividend growth.
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