News & Commentary

Market Review - March 2010

Growth assets

Recovering from a weak January, the Australian sharemarket managed to post its fourth consecutive positive quarter, up a modest 1.3%. While that makes a gain of almost 42% over the last year, another 24% is still needed to get us back near the peak at the end of October 2007.

Over the quarter, the Resources sector was up 1.1% and Industrials were up 1.3%. Smaller companies lagged their larger peers, down 1.6% versus up 1.5% respectively. Among the better performing companies were CSL (up 13.2%), ANZ (up 10.8%) and Westpac (up 10.0%), while the poorer performers included QBE (down 16.0%), Harvey Norman (down 14.2%) and Telstra (down 8.8%).

Australian listed property trusts had another weak quarter, down 1.6%. Nevertheless, they have also gained 42% over the last year. However, another 130% is still needed to recover to the position at the end of October 2007.

In local currency terms, the US sharemarket was up another 5.3% over the quarter, a result that was bettered by the UK (up 5.8%) and Japan (up 8.6%). Europe did worse, but was still up 2.4%.

Higher domestic interest rates and the continuing strong demand for our commodities saw the Australian dollar move higher over the quarter. Rising from 89.94 US cents at the start of the quarter to 91.78 US cents at the end, it was up another 2.1%. It was also up against the Yen and substantially up against the British Pound and Euro. While the overall appreciation of the Australian dollar against the basket of currencies making up the MSCI World ex-Australia Index again worked to reduce the returns for investors with an unhedged currency exposure to international shares, the unhedged index still managed a modest 1.1% return for the quarter. The fully hedged Index was up 5.5%.

Unlike Australian listed property, international listed property continued to perform quite strongly. While also impacted by the appreciation of the Australian dollar, the unhedged Index posted a further 3.4% return for the quarter. The fully hedged Index capped off a stellar year, up another 7.7% for the quarter.

The world’s emerging sharemarkets weren’t able to maintain their momentum, finishing the quarter with a flat result. The MSCI Emerging Markets Index was up only 0.3% (on an unhedged basis) over the quarter.

1. As calculated by Vanguard using MSCI data and methodology.
2. Adjusted to exclude Colombia prior to 1 March 2010, excluding Pakistan prior to 1 January 2009 and Russia prior to 1 December 2003. Performance as at 31 March 2010. Past performance is not an indicator of future performance. The above figures are index returns, not those of our Funds.
Sources: MSCI, S&P & UBS

Income assets

The US Federal Reserve kept its federal funds rate at effectively zero percent during the quarter, maintaining its commitment to keep rates low for an extended period. Following a pause in January and February, the Reserve Bank of Australia continued to raise its target cash rate, adding 0.25% in March to finish the quarter at 4%. A further 0.25% was added in April. Bond yields moved slightly higher over the quarter. Australian bonds returned a modest 1.3%, while hedged international government bonds did slightly better, up 2.2%. Hedged international investment-grade credit continued to benefit from narrowing spreads, up another 3.2%. With interest rates increasing, but still at low levels, the return on Australian cash improved slightly to 1.0% for the quarter.

Performance as at 31 March 2010. Past performance is not an indicator of future performance. The above figures are index returns, not those of our Funds.
Sources: Barclays & UBS