The month of May 2016 saw similar investor sentiment to April as growth asset markets again returned broadly positive returns. However it will remain to be seen whether May will be the ‘calm before the storm’ as the referendum in the United Kingdom (UK) (Brexit) looms in June, along with a Spanish election and a potential interest rate hike from the United States (US) Federal Reserve (Fed).
An increase of 5.4% in the price of oil led commodities higher and developed market equities as a whole returned a solid 1.9% through May, as measured by the MSCI World ex Australia Index (hedged to the Australian dollar). This result means developed and emerging market equities have both provided a positive return for the calendar year to May; a strong rebound following the weak start in Q1.
Australian equity markets remained positive through to May, with the S&P/ASX 300 Accumulation Index returning 3.1% for the month. There were positive returns across the market spectrum, with the best performer being the ASX mid 50, returning 5.7% for the month. The best performing sectors were Healthcare (+9.4%) and IT (+7.1%). The weakest performing sectors were Materials (-3.0%) and Energy (-1.6%). The largest positive contributors to the return of the index were CBA, CSL and ANZ, with absolute returns of 4.8%, 10.2% and 5.6% respectively. On the other hand, the most significant detractors from performance were BHP, Rio Tinto and Wesfarmers with absolute returns of -7.3%, -12.8% and -4.6% respectively.
The broad MSCI World ex Australia Index was up 1.9% in hedged terms and 6.0% in unhedged terms over the quarter, as the Australian dollar depreciated over May. The strongest performing sectors were IT (+10.3%) and Healthcare (+6.8%), while Materials (+1.3%) and Energy (+3.0%) were the worst performers. In Australian dollar terms, the Global Small Cap sector rose 6.7% while Emerging Markets returned 1.4%. Over May, the NASDAQ returned 3.6%, the S&P 500 Composite Index returned 1.8% and the Dow Jones Industrial Average returned 0.5%, all in local currency terms. European markets experienced modest returns, with the FTSE 100 (UK) up 0.3%, DAX 30 (Germany) 2.2% and the CAC 40 (France) returning 3.5%. In Asia, equity markets saw mixed results, with the Indian BSE 500 up 3.4%, the Hang Seng Index returning -0.5%, the SSE Composite (China) returning -0.7% and the Japanese TOPIX rising 2.9%.
The Australian dollar depreciated against most major currencies over May, finishing at US$0.724 with a Trade Weighted Index of 61.7. The Australian dollar depreciated 3.2% against the Euro, 5.6% against the Pound Sterling, 1.9% against the Japanese Yen and 5.1% against the US dollar. On a trade-weighted basis, the local currency fell 3.3% over the month.