After a dreary start to 2016, a return of investor confidence was responsible for a March 2016 recovery. Major fears that had driven markets down earlier in the year began to ease, the United States (US) dollar started to soften and the price of oil started to rise, suggesting that the global economy was not headed for a crash. The substantial market recovery in March was a very encouraging end to a sometimes frightening first quarter as the 5.3% return for March meant the MSCI World ex Australia finished only 1.9% below where it finished 2015 (in hedged Australian dollar terms). The rebound that began in the second half of February was helped by more stimulus from the European Central Bank (ECB) as well as the US Federal Reserve (Fed) noting in its March release that US household spending and economic activity continues to expand at a moderate pace. Nevertheless, it is important to remember that although we have largely recovered from the spike in uncertainty earlier in the year, risks remain.
Australian Equities finished the quarter strongly in March, with the S&P/ASX 300 Accumulation Index returning 4.8% for the month. There were mixed results across the market spectrum, with the best performer being the Mid 50, returning 5.5% for the quarter. The best performing sectors were Financials ex Prop (+6.7%) and Energy (+6.2%). The weakest performing sectors were Healthcare (+0.4%) and Utilities (+1.3%). The largest positive contributors to the return of the index were CBA, NAB and Westpac, with absolute returns of 6.8%, 9.2% and 6.1% respectively. On the other hand, the most significant detractors from performance were Caltex, Ramsay Health Care and Brambles with absolute returns of -6.6%, -7.2% and -2.8% respectively.
The broad MSCI World ex Australia Index was up 5.2% in hedged terms and down 1.0% in unhedged terms over the quarter, as the Australian dollar appreciated strongly through March. The strongest performing sectors were Materials (+5.3%) and Industrials (+1.3%), while Financials (-4.4%) and IT (-2.4%) were the worst performers. In Australian dollar terms, the Global Small Cap sector rose 0.7% while Emerging Markets returned 5.1%. Over March, the NASDAQ returned 6.8%, the S&P 500 Composite Index returned 6.8% and the Dow Jones Industrial Average returned 7.2%, all in local currency terms. European markets experienced modest returns, with the FTSE 100 (UK) up 1.8%, DAX 30 (Germany) 5.0% and the CAC 40 (France) returning 0.9%. In Asia, equity markets rebounded strongly, with the Indian BSE 500 up 10.6%, the Hang Seng Index returning 9.2%, the SSE Composite (China) returning 11.8% and the Japanese TOPIX rising 4.8%.
The Australian dollar appreciated strongly against most major currencies over March, finishing at US$0.769 with a Trade Weighted Index of 64.4. The Australian dollar appreciated 3.6% against the Euro, 3.7% against the Pound Sterling, 6.4% against the Japanese Yen and 7.7% against the US Dollar. On a trade-weighted basis, the local currency rose 4.9% over the quarter.