October 2016 saw a turnaround from recent market trends as expectations rose for a rate climb in the United States (US) and inflation showed signs of firming. Global bond returns were weak, and growth markets failed to pick up the slack; instead displaying signs of investor timidity and uncertainty.
The Australian equity market contracted over October, with the S&P/ASX 300 Accumulation Index falling 2.2% for the month. There were negative returns across the majority of the market spectrum, the best relative performer being the S&P/ASX 50 Accum, returning -1.5% for the month. The best performing sectors were Materials (+1.2%) and Financials Ex Prop (+0.7%). The weakest performing sectors were Healthcare (-8.1%) and Real Estate (-7.4%). The largest positive contributors to the return of the index were Westpac, BHP and CBA, with absolute returns of 3.8%, 3.2% and 1.4% respectively. In contrast, the most significant detractors from performance were Wesfarmers, CSL and Scentre Group with absolute returns of -6.7%, -5.9% and -10.1% respectively.
The broad MSCI World ex Australia Index was down 0.5% in hedged terms and 1.4% in unhedged terms over the month, as the Australian dollar appreciated against most major currencies with exception of the US dollar over October. The strongest performing sectors were Financials (+2.8%) and Information Technology (-0.1%), while Healthcare (-6.4%) and Telecommunication Services (-4.0%) were the worst performers. In Australian dollar terms, the Global Small Cap sector fell 3.1% while Emerging Markets rose 0.8% in unhedged Australian dollar terms. Over October, the NASDAQ returned -2.3%, the S&P 500 Composite Index fell by 1.8% and the Dow Jones Industrial Average fell 0.8%, all in US dollar terms. Major European equity markets experienced positive returns as the FTSE 100 (UK) grew 1.0%, the DAX 30 (Germany) grew 1.5% and the CAC 40 (France) also grew 1.5%. In Asia, the Indian BSE 500 was up 1.3%, the Hang Seng Index down 1.4%, the SSE Composite (China) up 3.2% and the Japanese TOPIX up a strong 5.3% over October.
The Australian dollar rose against most currencies over October, but fell against a rising US dollar, finishing at US$0.761 with a Trade Weighted Index of 65.0 on 31 October 2016. The Australian dollar depreciated against the US dollar (-0.6%), but rose against the Euro (+2.0%), the Pound Sterling (+6.1%) and the Yen (+3.4%). On a trade-weighted basis, the local currency increased 1.7% over the month.