The market news in June 2016 was dominated by the United Kingdom (UK) referendum decision to leave the European Union (EU). The most immediate impact to financial markets following the revelation came through a plunge in the Pound Sterling – dropping to some 30-year lows the day of the referendum count. The immediate market and currency volatility was unpriced due to few correctly predicting the result. Going forward, the implications of the ‘Brexit’ vote are highly significant for the UK, although the impact is difficult to quantify given the ongoing political uncertainty. The impact on Europe and the rest of the world is clearly smaller, but even harder to forecast as it depends upon the level of economic and political contagion of the UK decision.
The Australian equity market was negative over June, with the S&P/ASX 300 Accumulation Index returning -2.4% for the month. There were negative returns across the market cap spectrum, with the weakest performer being the ASX 50, returning -2.6% for the month. The best performing sectors were Utilities (+5.6%) and Property Trusts (+3.5%). The weakest performing sectors were IT (-7.6%) and Financials ex Prop (-5.9%). The largest positive contributors to the return of the index were Newcrest Mining, Scentre Group and Fortescue Metals, with absolute returns of 20.6%, 6.0% and 17.6% respectively. In contrast, the most significant detractors from performance were CBA, NAB and Westpac with absolute returns of -4.0%, -5.7% and -3.7% respectively.
The broad MSCI World ex Australia Index was down 1.2% in hedged terms and 3.8% in unhedged terms over the month, as the Australian dollar appreciated over June. The strongest performing sectors were Utilities (+2.2%) and Energy (+1.5%), while Financials (-8.5%) and Consumer Discretionary (-6.2%) were the worst performers. In Australian dollar terms, the Global Small Cap sector fell 4.5% while Emerging Markets returned 1.2%. Over June, the NASDAQ returned -2.1%, the S&P 500 Composite Index returned 0.3% and the Dow Jones Industrial Average returned 0.9%, all in local currency terms. European markets experienced mixed results, with the FTSE 100 (UK) up 4.7%, DAX 30 (Germany) down 5.7% and the CAC 40 (France) down -5.3%. In Asia, equity markets saw mixed results, with the Indian BSE 500 up 2.5%, the Hang Seng Index returning 1.4%, the SSE Composite (China) returning 0.4% and the Japanese TOPIX falling 9.6%.
The Australian dollar strengthened against most currencies over June, finishing at US$0.745 with a Trade Weighted Index of 62.5. The Australian dollar appreciated significantly against the Pound Sterling (+12.4%) following the outcome of ‘Brexit’. It also appreciated against the US dollar (+2.8%) and the Euro (+3.0%) while depreciating against the Yen by 5.4%. On a trade-weighted basis, the local currency rose 1.3% over the month.