Market update - May 2012
While April’s positive market results seemed somewhat incongruous next to a stream of less-than-encouraging economic and company data, May’s share market weakness emphatically restored the balance.
The very poor outcomes in equity markets in May were driven predominantly by continuing concerns around Europe and whether the June 17 election in Greece would put a government in place that would allow for disorderly default.
Adding fuel to the fire, concerns about the US and China were heightened over the month, with weak data out of each. There’s no doubt the US – which came out of the blocks pretty quickly at the start of the year –has slowed quite significantly. In China the release of 7-8% GDP growth figures, while still outstanding by comparison with most of the rest of the globe – are notably different to last year’s double digit growth.
Not surprisingly, European markets once again reported relatively sharp declines, with Spain’s IBEX falling by more than -13%, France’s CAC index dropping -6.1%, Germany’s DAX losing -7.3%, and the FTSE similarly down -7.3%. Outside of Europe, the Nikkei was among the weaker performers of developed economies, with the Index falling -8.6% as a stronger yen added to the pressure on the Index. In the US, the S&P500 fell by -6.3% and the Nasdaq fell by -7.3%, its largest monthly decline in two years.
How is this affecting the domestic market? Well, we continue to see a rotation into defensive stocks and away from those sectors that are exposed to the global slowdown, particularly those most impacted by sinking Chinese demand. Hence while Utilities (+1.8%), Telecommunications (+0.2%) and Health Care (+0.2%) managed to resist the general market rout (just), the worst performers were Materials (-10.8%) and Energy (-10.2%).
After a larger than expected 50 basis point cut in May, the Reserve Bank of Australia (RBA) cut the interest rate by another 25 basis points at its June meeting. The RBA noted that indicators suggest further weakening in Europe and moderation in Chinese growth. In Australia, the output growth remained below trend. While maintaining its view on the medium-term inflation outlook, the RBA expects near-term inflation to be in the lower part of its 2-3 per cent target range.
In terms of our fixed interest portfolios, May saw a continuation of the bond rally that started in mid-March as the European crisis lurched further towards the abyss. In the main developed markets – such as in our favoured markets of Germany and Australia – bond prices have moved steadily higher over the last few months and we believe they still have further to rise.
Want to find out more?
For a more detailed analysis of:
- domestic and global market performance in May 2012
- how our funds performed, and
- what our outlook is for the period ahead