Flight to safety globally
- Global shares fell -8.5% and -4.9% in hedged and unhedged terms, respectively. Emerging markets were relative outperformers (only down -1.6%) with COVID-19 (a.k.a. coronavirus) outbreaks outside of China and their economic impact a driving concern for global share markets.
- Domestically, Australian shares underperformed international markets falling -7.7% in February. This was driven by weakness in the Energy and Technology sectors with economic growth concerns seeing oil prices fall 13.1% during the month.
- The Australian dollar (AUD) fell against major currencies by -1.9% attributable to expectations of weaker Chinese growth from the coronavirus and weaker domestic economic data.
- Fixed income assets rallied with growth concerns from the virus outbreak outside of China the key driver.
- Another factor was expectations of further interest cuts domestically and internationally (if rates fall on cash in a savings account a bond offering a fixed rate becomes more attractive with investors buying and pushing its price higher. This saw a continuation of positive returns for both domestic fixed income and international fixed income.
As the coronavirus outbreak figured prominently on investor radars…
- Global business surveys softened with the JP Morgan Global Manufacturing PMI falling into contractionary territory (pointing to weaker economic growth).
- Spikes in COVID-19 notably appeared outside of China with South Korea, Italy and Iran now prominent hotspots.
- Australian economic growth for the December quarter surprised slightly at 0.5% (consensus: 0.4%) thanks to weaker import spending and stronger inventory and consumption (driven by sales events such as Black Friday).
- The RBA cut the cash rate by 0.25% to a new low of 0.5% citing concerns over the coronavirus economic impact.
- The virus outbreak is expected to have a notable impact on economic growth with Tourism Australia citing a 10% decline in bookings from China following Australian government travel bans until early March.
- The labour market disappointed with the unemployment rate rising to 5.3%, some 0.8% higher than the RBA target of 4.5%.
Major asset class performance
|5 years (p.a.) %|
|Global shares (hedged)||-8.5||4.4||6.9|
|Global shares (unhedged)||-4.9||15.6||10.2|
|Global small companies (unhedged)||-6.3||6.5||8.8|
|Global emerging markets (unhedged)||-1.6||8.3||6.8|
|Global listed property (hedged)||-8.1||2.2||4.1|
|Australian fixed income||0.9||9.0||4.4|
|International fixed income||1.2||9.3||4.5|
Source: Bloomberg & IOOF, 28 February 2020 Indices used: Australian Shares: S&P/ASX 200 Accumulation Index, Global shares (hedged): MSCI World ex Australia Net Total Return (in AUD), Global shares (unhedged): MSCI World ex Australia Hedged AUD Net Total Return Index; Global small companies (unhedged): MSCI World Small Cap Net Total Return USD Index (in AUD); Global emerging markets (unhedged): MSCI Emerging Markets EM Net Total Return AUD Index; Global listed property (hedged): FTSE EPRA/NAREIT Developed Index Hedged in AUD Net Total Return; Cash: Bloomberg AusBond Bank Bill Index; Australian fixed income: Bloomberg AusBond Composite 0+ Yr Index; International fixed income: Bloomberg Barclays Global Aggregate Total Return Index Value Hedged AUD Please note: Past performance is not indicative of future performance
|Exchange rates||At close on 29/2||
|Trade weighted index||57.0||-1.9||-6.1|
Source: Bloomberg & IOOF, 28 February 2020. All foreign exchange rates are rounded to two decimal places where appropriate. Please note: Past performance is not indicative of future performance.
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