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Market Commentary
May 2017
Markets were dominated by political
and geopolitical events throughout
May. While centrist Emmanuel
Macron’s victory in the French
presidential election boosted investor
confidence early in the month, ongoing
geopolitical concerns in the Middle East
and North Korea continued to weigh
on market performance. In the US,
concerns mounted over the possibility
that US President Donald Trump could
be impeached following accusations
that he disclosed classified information
to Russian officials and following the
revelation that he sought to interfere
with the FBI investigation into former
US National Security Adviser, Michael
Flynn. These events corresponded with
the MSCI World Index and S&P 500
Index falling more than 1.5% and 1.8%
respectively in a single day.
The US Republican Party passed its
healthcare reform plans through the
House of Representatives, providing
some comfort to investors concerned
about the new administration’s ability
to implement tax reform. The US
Federal Reserve (Fed) left interest rates
unchanged at its May meeting, noting
the recent weakness in US economic
data, but expressing the belief that this
was ‘transitionary’ in nature, while
signaling that they are on track to
continue raising interest rates in 2017.
Further plans to reduce the Fed’s
$4.5tn balance sheet were outlined,
with a proposal to allow a capped
number of bonds to roll-off monthly
without being reinvested. Towards the
end of the month, US equities rallied
following the release of the US Federal
budget, which outlined proposed
infrastructure and defense spending
initiatives.
The MSCI World Index ex-Australia
(hedged into AUD) rose 1.9% over
the month. The Australian dollar
depreciated against most developed
market currencies in May, which
resulted in a return for unhedged
overseas equities of 2.9% (in AUD).
In developed markets, the UK (4.9%)
and Japan (2.2%) outperformed
the broader market, while Canada
(-1.4%) and the US (1.4%)
underperformed. The MSCI Emerging
Markets Index (3.4%) outperformed
unhedged developed markets.
The Reserve Bank of Australia revised
their inflation and growth forecasts
slightly upwards, with first quarter
GDP weakness attributed to the
impact of Cyclone Debbie on coal
exports. Australian equities trended
lower over the month, led by weak
performance from the banking sector
following the release of the Australian
Federal Budget, which proposed a
new levy on major banks. The broader
Financials sector was also weighed
down toward the end of the month,
when ratings agency Standard &
Poor downgraded the credit ratings
of 23 Australian financial institutions,
citing heightened risks to a sharp
correction in domestic property prices,
compounded by weak domestic wage
growth.
The S&P/ASX300 Accumulation Index
fell 2.7% in May. Small Cap stocks
fell 2.1% for the month, while Large
Cap stocks (-3.3%) underperformed
the broader market. Industrials (4.7%),
Telecommunication Services (3.4%)
and Energy (1.5%) outperformed,
while Financials (-7.7%) and
Healthcare (-2.4%) were the worst
performing sectors.
The yield on 10-year Australian
Government bonds fell to 2.4% over
the month. Elsewhere in the world,
the US, UK and New Zealand 10year Government bond yields fell,
while Japanese and Euro 10-year
Government bond yields were flat.
In Australia, long dated bonds
and inflation-linked bonds both
outperformed the broader market.
Market Performance – 31 May 2017
Performance %
Month
Quarter
FYTD
Australian Equities
-2.7%
1.4%
13.6%
Australian Unlisted Property
0.5%
2.9%
9.9%
Australian Listed Property
-1.0%
2.2%
-1.2%
Global Listed Property (Hedged into AUD)
0.6%
0.3%
2.5%
Overseas Equities (Hedged into AUD)
1.9%
4.3%
21.0%
Overseas Equities (Unhedged into AUD)
2.9%
8.6%
18.5%
Emerging Markets (Unhedged into AUD)
3.4%
11.5%
22.9%
Australian Bonds
1.2%
2.4%
1.2%
Overseas Bonds (Hedged into AUD)
0.6%
1.4%
0.7%
Cash
0.1%
0.4%
1.7%
Australian Dollar vs. US Dollar
-0.5%
-3.2%
0.0%
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
Market Performance – 31 May 2017
Month
Quarter
FYTD
24%
22%
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
Australian
Equities
Australian
Unlisted
Property estimated
Australian
Listed
Property
Global
Listed
Property
(Hedged
into AUD)
Overseas
Equities
(Hedged into
AUD)
Overseas
Equities
(Unhedged
into AUD)
Emerging
Markets
(Unhedged
into AUD)
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
Australian
Bonds
Overseas
Bonds
(Hedged into
AUD)
Cash
Australian
Dollar vs. US
Dollar