Market Commentary
January 2017
Markets were largely driven
by political headlines over
the month, as Donald Trump
was inaugurated as the US
President on 20 January. Despite
discussions of global reflation
led by a manufacturing recovery
in China, UK and US, global
markets switched to a risk-off
sentiment. The initial ‘Trump rally’
dissipated and investors reduced
their positions in infrastructure
and energy, as the new Trump
administration failed to provide
further details on their proposed
fiscal policies.
The US S&P500 Index traded flat
in the first half of January and
ended the month higher as
Trump issued orders to build two
new US oil pipelines. However,
some gains were lost as investors
became increasingly concerned
that Trump’s protectionist stance
(which included an executive
order for the US to withdraw from
the Trans Pacific Partnership) and
controversial immigration plans
might outweigh the benefits
of his pro-business policies.
These concerns, along with
a lack of clarity around other
proposed fiscal policies, led to
a depreciation of the US Dollar
Index by 2.6%. In addition, the US
Federal Reserve reaffirmed plans
of a gradual interest rate increase
going forward, citing strong
employment and rising inflation
stemming from a number of
Trump’s proposed fiscal policies.
The S&P/ASX300 climbed strongly
early in the month, supported by
a continued increase in iron ore
prices, but ended the month lower.
The Australian dollar appreciated
by 4.8% to the US dollar, supported
similarly by the rally in commodity
prices, strong Chinese GDP
growth and weakness in the US
dollar. On 25 January, Moody’s
Investors Services released a
report which reaffirmed Australia’s
AAA sovereign credit rating, citing
Australia’s robust institutional
framework and emphasising
that Australia has stronger fiscal
metrics than many other AAA
rated countries.
UK Prime Minister Theresa May
confirmed her plans for a ‘hard
Brexit’ on 17 January, promising
that the British Parliament will be
given the final vote on these plans.
This led to a strong appreciation
of the British Pound as investors
gain increased certainty over
the expected outcome of Brexit.
Despite the concerns over Brexit,
the most recent UK Manufacturing
Purchasing Managers’ Index (PMI)
rose to a 2 year high of 56.1.
The price of crude oil WTI has
stabilised over the month as
Russian Energy Minister Alexander
Novak announced that the
recent deal to reduce crude oil
production among oil producing
nations was proceeding better
than planned.
The S&P/ASX300 Accumulation
Index fell 0.8% in January. Small
Cap stocks fell 2.4% for the month,
while Large Cap stocks (-0.7%)
outperformed the broader market.
Materials (4.8%), Health Care
(4.6%) and Utilities (1.1%) stocks
outperformed, while Property Trusts
(-4.7%) and Industrials (-4.4%)
were the worst performing sectors.
The MSCI World Index ex-Australia
(hedged into AUD) rose 1.4%
over the month. The Australian
dollar appreciated against most
developed market currencies
in January, which resulted in a
return for unhedged overseas
equities of -2.3% (in AUD). In
developed markets, Hong Kong
(7.8%) and Singapore (5.7%)
outperformed the broader market,
while Italy (-4.8%) and Finland
(-3.1%) underperformed. The
MSCI Emerging Markets Index
(0.6%) outperformed unhedged
developed markets.
Market Performance – 31 January 2017
The yield on 10-year Australian
Government bonds fell from 2.8%
to 2.7% over the month. Long
duration bonds outperformed the
broader market, whereas inflationlinked bonds outperformed.
Elsewhere in the world, the US,
Euro, UK, New Zealand, and
Japanese 10-year Government
bond yields rose.
Performance %
Month
Quarter
FYTD
Australian Equities
-0.8%
6.4%
9.6%
Australian Property (Unlisted) - estimated
0.5%
3.1%
6.3%
Australian Property (Listed)
-4.7%
2.5%
-7.2%
Overseas Equities (Hedged into AUD)
1.4%
7.4%
12.4%
Overseas Equities (Unhedged into AUD)
-2.3%
6.7%
7.5%
Emerging Markets (Unhedged into AUD)
0.6%
1.2%
8.3%
Australian Bonds
0.6%
-1.0%
-1.4%
Overseas Bonds (Hedged into AUD)
-0.3%
-1.5%
-1.6%
Cash
0.2%
0.4%
1.1%
Australian Dollars vs. US Dollar
4.8%
-0.2%
2.0%
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
Market Performance – 31 January 2017
13
Month
11
Quarter
FYTD
9
7
5
3
1
-1
-3
-5
-7
Australian
Equities
Australian Australian Overseas
Equities
Property
Property
(Hedged
(Unlisted) - (Listed)
into AUD)
estimated
Australian
Overseas Emerging
Markets
Bonds
Equities
(Unhedged (Unhedged
into AUD) into AUD)
Overseas
Bonds
(Hedged
into AUD)
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
Cash
Australian
Dollars vs.
US Dollar