Investment Month in Review - October 2017

By Duncan Niven - November 2, 2017

Pitcher Partners' wrap up of issues impacting the markets over the last month.

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All the major asset classes produced flat to positive returns over the month of October.  

Indicies

Current Level

1 month return

3 months return

ASX 200

5,909.0

4.0%

3.3%

ASX 200 (Acc)

58,391.8

4.0%

4.7%

US S&P 500

2,575.3

2.2%

4.2%

Japan Nikkei

22,011.6

8.1%

10.5%

UK FTSE 100

7,493.1

1.6%

1.6%

MSCI World

2,036.8

1.8%

3.9%

German Dax

13,229.6

3.1%

9.2%

French CAC

5,503.3

3.3%

8.0%

HK Hang Seng

28,245.5

2.5%

3.4%

Shanghai Comp

3,393.3

1.3%

3.7%

       

ASX 200 Prop (Acc)

44,720.9

2.2%

4.1%

Global Prop

2,465.2

0.2%

0.3%

       

Australian Bonds

9,101.5

1.1%

0.8%

International Bonds

967.2

0.5%

1.0%

       

Commodities

     

Gold (oz)

1,271.5

-0.6%

0.2%

Oil (Barrel)

54.4

5.2%

8.4%

Iron Ore (Tonne)

58.5

-5.7%

-20.6%

Aluminium

2,160.0

2.8%

12.6%

Copper

6,839.0

5.5%

7.4%

Lead

2,414.0

-2.9%

3.4%

CRB Index

187.6

2.4%

2.7%

       

Currency

     

AUD/USD

0.7656

-2.3%

-4.3%

AUD/EUR

0.6574

-0.9%

-2.7%

AUD/GBP

0.5764

-1.4%

-4.8%

AUD/JPY

87.0060

-1.3%

-1.4%

AUD/RMB

5.0788

-2.7%

-5.4%

 

Source: Bloomberg

In Australia, a constructive overtone to economic releases and strength in most commodity prices led the market 4% higher over the period.  All the major industry groups produced positive returns for the month, however the larger gains were generated within the more economically sensitive sectors such as consumer discretionary, technology, energy and resources. Telecommunications, led by Telstra, continued to lag the market advance.Global equities advanced in a broad based fashion across both developed and emerging markets. While inflation continues to undershoot central banks and investor expectations, other macro data was generally positive (particularly out of Europe) and in conjunction with solid corporate earnings releases from Japan, U.S and Europe, many share markets produced mid-single digit returns for the month. Chinese equities also continued their ascent as President Xi solidified his power and outlined his strategic vision for China at the 19th National Congress of the Communist Party.    

A key focal point for the month was the High Court’s decision that Barnaby Joyce, the Deputy Prime Minister, had been elected illegitimately as a dual citizen. The Court also found that four senators were ineligible to be in Parliament.  The coalition has subsequently lost its outright majority in the lower house, however support expressed from two Independent MPs is likely to stave off any votes of no confidence as Joyce heads toward a by-election in his New England electorate in northern NSW on 2nd December. 

Within fixed income, as expected the ECB announced it would begin to taper its bond purchase program by €30bn per month into the second half of 2018. The RBA kept the cash rate unchanged at 1.5% while the 10Yr Australian Government Bond tightened 17bps to 2.7%, helping the Australian fixed income market rise 1.1% in aggregate.   Global Bonds advanced 0.4%, assisted by a general tightening in credit spreads.  

In commodities, the price of WTI Crude rose ~5% on increasing market expectations that the current OPEC led production cuts could extend beyond its March 2018 deadline.   The price of gold was flat in USD terms while Iron Ore declined 5.7%. 

The $A depreciated against all the major currencies over the period, closing the month at $0.7674 against the $US.   

Investment Implications

As expanded on later in this month’s review, key political news flow out of Australia and China looks to provide select Australian equities in areas such as health care, energy and commodities a solid platform for good medium to long term financial performance.


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