Quarterly Investment Update - September 2018
ESSSuper - 23 Oct 2018
Leroy D’Souza, Senior Investments Analyst, takes the opportunity to review market activity and the Fund’s performance over Q3 2018.
Overall positive but less synchronised global growth across most major markets compared to last year.
Economic Environment:
Trade tensions between the US and China intensified, with US President Trump increasing initial penalties on US$50bn worth of Chinese exports to include a further US$200bn worth of Chinese products.
Trump’s confrontational trade policy did little to dampen a strong US economy, which saw the unemployment rate fall to a 49-year low of 3.7% and wage growth increase to an annualised rate of 2.9%, the highest since 2009.
The US Federal Reserve responded to growing inflationary pressure by increasing the Fed Funds Rate by 0.25% to 2.0% - 2.25% at its September meeting.
Economies across Europe experienced more mixed results, with Eurozone inflation slightly easing in August from 2.1% to 2.0% per annum, coinciding with the European Central Bank reiterating their intention to keep interest rates on hold until 2019. European Union President Junker worked to reduce the impact of Trump’s trade policies, agreeing with the US in July to tariff exclusions across certain sectors such as non-auto industrial goods.
Economic activity in the UK was weighed down by concerns the UK and European Union would fail to reach an agreement on the UK’s exit from the monetary union.
In Australia, the Reserve Bank of Australia (RBA) kept interest rates on hold at 1.5% over the September quarter. The Australian dollar further weakened against the US dollar, ending September at US72¢.
Shares:
Equity market returns were generally positive over the September quarter, with US and Japanese equity markets leading the way with very strong returns of 7.7% (USD) and 8.9% (JPY) respectively. Emerging Markets were down -1.0% (USD) in part due to investor concerns about the impact of Trump’s trade policies on emerging market economies. The UK equity market also fared poorly, returning -0.7% (GBP) over the quarter. Australian equities posted modest gains, with the S&P/ASX 300 rising by 1.5% over the September quarter.
Fixed Interest & Cash:
Global bond returns were muted, with the Barclays Global Aggregate (Hedged into AUD) returning -0.1% over the September quarter. Australian cash returns remained at historical lows of 0.5% over the quarter.