Asset performance from Aussie viewpoint

- BT Funds Management

A quick round-up of the performance of different asset classes in the last six months.

Australian shares

The rise that began in March 2009 became an extended rally with the market rising for six successive months through September. Increasing confidence in a global economic recovery gave momentum to the market’s upswing and low interest rates meant there was plenty of cash looking for a home in Australian shares.
The market benefited from stronger Chinese growth — good news for a big resources exporter like Australia — and the likelihood that Australia’s unemployment rate will end up significantly lower than many predicted. At the end of September, the Australian share market was up around 32% for the calendar year, as measured by the ASX/S&P300 Index.

International shares

The global sharemarket recovery that began in March strengthened in the six months to September with most major markets rising strongly. The US S&P500 was up over 50% from the trough it hit in early March.
US markets rose on stronger than expected company earnings, with technology and financial companies doing well. Residential property prices rose for three months in a row into September (according to the NAHB housing market index). Given the depth of the US property crash, this is a key sign of improving confidence.

Bonds

The strengthening global economy saw investors move away from bonds and towards the higher returns promised by global sharemarkets.

In this environment, international bonds outperformed their Australian counterparts. Australia’s economy is emerging from the Global Financial Crisis in relatively good shape. As a result, interest rates in Australia are likely to continue rise. Rising interest rates make bond holdings less attractive because the bonds you can buy now offer higher rates than those you already own.

Australian listed property

Listed property enjoyed a strong rise over the past six months. Indeed, August 2009 saw the sector’s biggest monthly gain in 20 years — a 16% return that beat the overall sharemarket by more than 9%! Property securities benefited from reduced volatility in debt markets — where much of their capital is sourced — and from improved economic and market sentiment.

Cash

Australia’s cash rate has been cut from 7.25% in August 2008 to a low of 3% prior to the rate rise in early October. This move was crucial to Australia’s economic resilience but 3% was what Australia’s Reserve Bank Governor Glenn Stevens calls an ‘emergency setting’. Cash rates should continue to rise from the current 3.25%.