Market Update - April 2013

The Australian equities market (S&P/ASX 300 Accumulation Index) climbed 4.3% in April, offsetting losses in March. Confidence restored to some degree as issues with Cyprus last month came to a formal resolution. A strong US earnings season similarly invited risk appetites as results validated the belief that the global recovery was backed by tangible outcomes rather than idle hopes of a turnaround. Closer to home the biggest driver of returns remains the liquidity injections in Japan. Intent on stimulating activity the Bank of Japan has engulfed its system with fresh capital to which domestic markets have been a large beneficiary.

Global equities were up in April, led by the European periphery and Japan. The MSCI World Index was up +2.9%, another positive month with many markets hitting new all-time highs.

Returns were strong in Europe with Spain (+6.3%) and Italy (+9.3%) leading the charge as positive news from Europe lifted market sentiment. Highlights included the approval of bailout arrangements for Cyprus and the end of Italy’s political uncertainty as Enrico Letta was sworn in as Prime Minister.

The US market as measured by the S&P 500 (+1.8%) underperformed the world benchmark following a weaker-than-expected 1Q13 Gross Domestic Product (GDP) report (+2.5% quarter-to-quarter annualised) and a downward revision to the previous month’s pending home sales numbers.

Returns in Asia were mixed with Japan (+11.8%) a stand out performer again as the Bank Of Japan’s further stimulus announcement buoyed the market in April. Hong Kong was positive (+2%) but the Chinese market was negative (Shanghai -2.6%).

Fixed interest markets were positive in April, as 10 year bond yields fell both here in Australia and around the world. April saw global inflation continue to slow down and growth outlook continue to deteriorate. The IMF’s latest World Economic Outlook downgraded 2013 growth to 3.2% from 3.5%, and 2014 to 4% from 4.1%.

The Reserve Bank of Australia (RBA) left the cash rate unchanged at 3% at its April meeting. The easing bias was retained, with inflation and sub-trend nearer-term growth providing scope for further monetary policy easing if required. The Australian dollar ($A) fell against most major currencies in April, closing at 1.037 (-0.4%) against the US dollar ($US).

Market Outlook

Undoubtedly global economic growth does appear to be weakening further with tax increases and government spending cuts weighing on growth in the US, more recent data out of China showing growth moderating (albeit at close to 8%) and Europe remaining mired in recession.
Domestically the elevated level of the Australian dollar and limited fiscal policy support continue to push the burden onto monetary policy to support the Australian economy. Business conditions have weakened and the labour market has softened.

On the resources front, the prospect of declining revenue flows from the predicted fall in commodity prices has led to almost all resources stocks being well out of favour. For service companies, weaker cash-flows and deteriorating balance sheets are clear headwinds. While we remain underweight the services sector, there are selective resource stocks that are enviably positioned on the cost curve and will still grow profits even at much lower commodity prices, which are fundamentally cheap. In addition, we are invested in selected over-discounted resource stocks where there is a clear pathway to improvement.

Want to find out more?

Download BTIM's April 2013 Fund Manager Commentaries for a more detailed analysis of:

• domestic and global market performance in April 2013
• how our funds performed, and
• Our outlook for the period ahead.

- Download this market update in PDF format