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Risk assets continued to rally in the month of May, despite downward pressure from rising political and global trade concerns late in the period.
Global equities rose 1.4% on a hedged basis and 0.3% on an unhedged basis. The US share market was the standout performer, as growth stocks, led by the technology sector, outperformed markedly over the period. Resource and energy stocks continued their recent run of outperformance while traditional defensive sectors, such as telecoms, consumer staples and utilities lagged.
In Australia, the S&P/ASX 200 Accumulation index rose 1.1%. Healthcare, consumer discretionary and REITS were among the standout sector performers. Please read our latest thoughts on the consumer sector and the completion of the Westfield and Unibail-Rodamco transaction via the respective links. Telstra on the other hand led the Telecommunication sector down 10%, as the company announced earnings guidance that disappointed the market, rekindling fears that its dividends could be cut again. Its long term credit rating was cut to A- by S&P.
Small cap stocks, led by resources, continued their lofty ascent with the S&P/ASX Small Ords Index having risen 25.4% versus the 9.6% gain from the broader market for the last 12 months! M&A activity continues to build with both Healthscope and BWX Limited receiving bids during the month.
Within fixed income, returns from both global and domestic bonds were generally flat over the month. Initial weakness was unwound in the second half of the month, as a more dovish overtone from the Federal Reserve coupled with political uncertainty in Italy saw bonds rally. Credit underperformed government bonds due to general risk aversion, with investment grade spreads widening slightly over the month.
The $A appreciated modestly against most major global currencies, closing the month at $0.7570 against the US Dollar.