Introduction

Quarterly Market Review

Shares in global developed and emerging markets delivered strong performances this past quarter, although Australia defied the positive trend. Emerging markets were the star performers for the quarter.

Quarterly Market Review

GLOBAL MARKET SUMMARY

Shares in global developed and emerging markets delivered strong performances this past quarter, although Australia defied the positive trend. Emerging markets were the star performers for the quarter, with overall unhedged returns of more than 5.6% in Australian dollar terms, while developed markets outside Australia delivered returns of more than 3.6%.

Australia was alone among developed markets in posting a negative return for the quarter 9-1.6%), weighed down by weakness in banking stocks, alongside telcos, energy, consumer staples and real estate investment trusts (REITs). Shares in Australia’s big four banks and Macquarie Group were pressured after the federal government, in its May budget, unveiled a $6.2 billion levy on the banks’ liabilities to plug a hole in public finances.

Among other markets, Europe and NZ topped the table in AUD terms, although currency effects had an influence. In contrast to Australia, financials were strong, alongside health care, industrials and the IT sector.

While there was a strong value premium over the full year, value was negative in the second quarter in both Australia and elsewhere. However, there was a positive size premium in Australia and other developed markets, while profitability was mixed. On currency markets, the US dollar was mostly weaker over the quarter, including against the Australian and NZ dollar. In fixed interest markets, the picture was mixed. Both the US and Australian yield curves flattened in the second quarter, while the European and UK curves steepened. Credit spreads narrowed a little.

Results were also mixed in REITs, with negative returns in Australia, flat to negative results in other developed markets, and positive returns in emerging markets.

Dominating the quarter’s news headlines were elections in France, the UK, Iran and South Korea, the ongoing probe into alleged Russian meddling in the 2016 US presidential election and a sequence of terrorist attacks in the UK. In March, the US Federal Reserve raised its funds target rate for the third time since December as it sought to gradually remove the stimulus added in the wake of the global financial crisis nearly a decade ago.

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