The Australian share market suffered its sixth consecutive monthly loss in September, with the ASX300 Accumulation Index falling 6.1%. Poor investor sentiment was again driven by ongoing European debt problems but also compounded by soft economic data in the US and an underwhelming market reaction to the US Federal Reserve’s USD400 billion ‘Operation Twist’, which is designed to reduce the longer dated treasury yields by increasing the Fed’s holdings in longer dated treasuries and reducing shorter dated notes. There was no respite from China either, with increasing speculation in the market that there would be a ‘hard landing’, based generally on softer demand and particularly on softer data from the property sector.

Despite being relatively less exposed to the sovereign and financial sector issues in Europe, the Australian share market in fact underperformed most European bourses. This was in part due to our market’s heavy weighting to the resource sector, which was sold off globally in line with sharply falling commodity prices. The ASX300 Resources Price Index was off 12.9% while the Energy sector was off 8.4%. Unsurprisingly more defensive sectors continued to outperform, with Telecoms and Consumer Staples the only sectors to produce a positive return during the month.

Global equity markets fell sharply in September on continuation of sovereign debt concerns and lower economic growth forecasts. Investors continued to move out of risk assets and into US Treasuries, despite further stimulus by the Federal Reserve, with US bond yields falling sharply over the month. The MSCI World Net Index fell 8.9% in US$ terms in September, resulting in the Index being 17.1% lower over the past three months.

Financial market volatility continued to impact the Fixed Income and Cash market segments. Australian bond yields had a strong rally in the first half of the month but experienced high volatility in the second half. The three-year bond yield fell from 3.77% to 3.62%; the ten-year yield from 4.37% to 4.22%; and the 3-10s yield curve steepened to 63 basis points. The Reserve Bank of Australia (RBA) left the cash rate unchanged again at 4.75% at its September meeting, in which it noted extreme volatility in global financial markets due to weaker economic data and the ongoing European banking crisis.

It was a relatively quiet month in the [Australian Property] segment, which, while slipping back 4.5%, outperformed the broader market which was down 6.1%. In the year-to-date AREITs have outperformed the broader market by 7.4%.

Fund Manager Commentary
Read BTIM’s complete fund manager commentary for September 2011