Investment Month in Review - April 2018

By Duncan Niven - May 7, 2018

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

Read: Royal Commission highlights the real value of independence

Read: The shape of the Watery Curve

Equity markets rallied back strongly in the month of April.  It was an eventful period with investors shrugging aside concerns over trade wars, U.S airstrikes on Syria, geopolitical tensions and the release, on balance, of some bifurcated economic data across the globe over the month.       

A notable development late in the period was the leaders of North and South Korea signing an agreement to end the Korean War and work towards a common goal of denuclearisation on its peninsular.  

Global equities outpaced local equities on an unhedged basis, rising 4.2% for the month.  Developed markets outperformed emerging markets, while Europe was the top performing region despite the Eurozone and the U.K exhibiting some softer economic activity in March.  The U.S, which saw an increase in its GDP and preferred measure of inflation, PCE (personal consumption expenditures),  is in the midst of its reporting season which highlighted yet again the strong underlying corporate profitability generated in the country, however share price performance was muted on the back of negative sentiment toward the technology sector.

Source: Bloomberg

Locally, the mixed economic data did little to dissuade equity investors, with the S&P/ASX 200 Accumulation Index rising 3.9%, offsetting the losses generated over the course of Q1. Rising commodity prices led the energy and resources sectors to surge ~10% for the month.  Healthcare and consumer staples also outperformed, with corporate activity a key feature. The Financials sector underperformed, following a steady slew of negative news flow emanated from the ongoing royal commission, a subject we discuss in more detail via our “Royal Commission highlights the real value of independence” report.        

Source: Iress

Source: Bloomberg

Within fixed income, the U.S yield curve continued to flatten over the period. The key highlight in the month was the U.S 10yr bond crossing the psychological barrier of 3% intra month, the highest level in 4 years. Short term U.S investment grade credit securities also reached their highest absolute yield in 8 years. We discuss our latest fixed income views, including comments on the recent volatility in short term funding costs in our accompanying “The Shape Of The Watery Curve” note.  

In Australia, underlying inflation continued to creep up gradually toward the RBA’s target band of 2-3%, while employment data was sluggish after a very strong Q1 in terms of new jobs added.  The yield on the 10yr Australian Bond rose to 2.77%, resulting in our local fixed interest benchmark declining by 0.4%.   

The $A declined modestly against the $US, closing the month at $0.7529.

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