The Australian share market staged a comeback in March, despite retreating late in the month as investors refocused on risks to the global economy. The S&P/ASX 200 Index ended the month up 4.7%, recovering some of the ground lost in February, but still down 15% on its April 2015 high. All sectors were positive, with strong retracements from Resources (6.7%), Energy (6.2%) and Materials (6.1%), and a rebound in Financials (5.9%) following significant declines in the start of the year. Industrials (2.27%) were the underperformers in March, but still the highes returning sector over a one-year period, recording 12.8%. Small cap shares again outperformed the market in March, with the index returning 5.5%.
Markets rallied in mid-March in response to comments from Fed Chair Janet Yellen, who provided a lower path for expected future rate rises, with the median expectation for the funds rate at the end of 2016 lowered by 50 bps to 0.75-1.00%.The US market rose 2.1% following the announcement, which was carried through to the end of the month. The S&P 500 Index finished the month up 6.6%, boosted by positive manufacturing and revised GDP growth data. Meanwhile in Europe, extraordinary monetary policy settings keep getting more extraordinary. In action evoking President Draghi’s fateful “whatever it takes” speech some four years ago, the ECB cut its deposit rate a further 20 bps to -0.40%, while the main refinancing rate was cut to zero. The European market rallied 3.6% in response to the decision, before falling 5.1% to end the week lower. In the UK, modest gains of 1.3% were achieved in March, and the German DAX added 4.9% despite subdued manufacturing output. Financial markets were supported by rising commodity prices, with crude oil ducking above US $40/b towards the end of the month. The MSCI World ex Australia NR Index gained 6.3% in March, with strong growth from Asian markets. The Japanese Index gained 4.6%, the Shanghai Index gained 11.8%, and the Hong Kong Index gained 8.7%.
Listed Property (REITs) & Infrastructure
The ASX Property Index retuned 2.4% in March, underperforming the market but still an attractive asset class for yield hunters. Concerns remain among some investors about the perceived risk associated with high valuation multiples, including potentially unsustainable distributions. Globally, REITs returned 9.5% in March (in USD terms), with free-standing retail, data centre, specialty, and self-storage REITS the top performers. Growth in cloud computing and data has driven demand for third-party IT infrastructure, which has been reflected in the REIT market.
Australian bonds returned -0.3% in March as a moderate rise in yields pushed bond values down. The Australian 10-year Treasury yield rose from 2.40 to 2.49, after reaching a high of 2.69 during the month, while 2-year yields rose from 1.77 to 1.90. Global bonds, as measured by the Barclays Global Aggregate Bond Index, returned 0.9% in March amidst falling yields on corporate investment grade and high yield bonds. Monthly returns on global corporate and high yield debt were 2.34% and 4.33% respectively. Softer economic growth forecasts have again pushed out expectations for a Fed rate increase, while the ECB took action to address persistent weakness in the European economy, cutting the deposit rate further into negative territory and expanding its asset purchase programme. Central bank credibility was on the line in March, although bond markets have reflected a more moderate risk environment compared to the start of the year.