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RBA cash rate stays put
Steve Campbell 4.6.13
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Market Update - February 2012
February was a month where the focus of local investors shifted more towards the home front, which has been a rare thing of late given the attention that the European debt situation in particular has gained both here and in every other market across the world. In general, it was a ‘risk-on’ month as nerves continue to settle in light of the Long Term Refinancing Operation in Europe and continuing strong momentum in US economic data. This was reflected in by the returns from the major asset classes: global and local equities rallied and both 10-year Australian and US government bonds sold off. One government bond that bucked this trend was the much publicized Italian government bond, with its yield falling amid continuing improvement in sentiment.
In terms of equity market returns, the US market was most noteworthy, posting a 4.1% rise in February as US companies for the most part beat fourth quarter earnings expectations against the backdrop of positive economic data releases.
The Australian share market also continued its positive start to 2012, with the ASX300 Accumulation Index posting a return of 2.0%. While a lacklustre result relative to global peers, taking into account the underperformance of the two dominant sectors in the market – Banks and Resources – it was a solid outcome.
The focus at home throughout the month was the half-year reporting season. This delivered slightly better results than expected but provided further evidence that that the environment for most Australian companies was not really improving. Nonetheless, better sentiment, beaten down valuations and pretty conservative expectations saw many share prices err to the positive post result announcements. While it’s clear that there is, for the most part, a lack of growth drivers or catalysts to drive earnings higher, there is also limited downside risk to further downgrades. Overall, the market is quite attractively valued and there are certainly enough areas of opportunity to keep active managers interested as investors shift their attention more towards fundamentals and away from macro issues.
In its first Monetary Policy Committee of the year, the RBA left interest rates on hold. This surprised many forecasters most of whom were predicting a 25bp cut.
Fund manager commentary
Read BTIM’s complete fund manager commentary for February 2012
