The market continued its positive form over December 2016 following the initial panic and rebound triggered by Republican candidate Donald Trump’s successful election victory in November. Attention is now drawn to the impact of the President Elect’s possible policy initiatives, which have the potential for both negative and positive market outcomes. Trump’s rhetoric from his campaign reflects a possible reversion to anti-immigration, protectionism and a weakening relationship with China, the effects of which could curb the current recovery pattern of the United States (US). On the positive side, Trump has promised higher spending on infrastructure, deregulation of the labour market and lower corporate taxes which could spur faster global growth from a resurgent American economy. So far markets have edged towards expansionary expectations. Equities and commodities have reflected this sentiment through the rebound over December, while bond markets have become more conservative as inflation risk rises.
The Australian equity market experienced strong growth over December, with the S&P/ASX 300 Accumulation Index increasing 4.3% for the month. There were positive returns across the majority of the market spectrum, with the best relative performer being the S&P/ASX 50 Accum, returning 4.5% for the month, while the worst performer was the S&P/ASX Small Ordinaries, increasing by 3.6% over the month. The best performing sectors were Utilities (+8.7%) and Real Estate (+6.7%). The weakest performing sectors were Telecom Services (+0.5%) and Healthcare (+0.9%). The largest positive contributors to the return of the index were CBA, ANZ and NAB, with absolute returns of 4.8%, 7.6% and 6.6% respectively. In contrast, the most significant detractors from performance were Sirtex Medical, Bellamy’s Australia and Transurban Group with absolute returns of -48.6%, -45.7% and -1.7% respectively.
The broad MSCI World ex Australia Index was up 2.9% in hedged terms and 4.5% in unhedged terms over the month, as the Australian dollar depreciated against most major currencies over December. The strongest performing sectors were Telecom Services (+8.1%) and Utilities (6.5%), while Industrials (+2.9%) and Consumer Discretionary (+3.4%) were the worst performers. In Australian dollar terms, the Global Small Cap sector rose 4.5% while Emerging Markets increased 2.3% in unhedged Australian dollar terms.
Over December, the NASDAQ returned 1.1%, the S&P 500 Composite Index rose by 2.0% and the Dow Jones Industrial Average increased 3.4%, all in US dollar terms. Major European equity markets experienced positive returns as the FTSE 100 (UK) increased 5.4%, the DAX 30 (Germany) increased 7.9% while the CAC 40 (France) grew 6.4%. In Asia, the Indian BSE 500 was down 1.4%, the Hang Seng Index down 3.4%, the SSE Composite (China) down 4.5% while the Japanese TOPIX experienced another solid month with 3.5% growth over December.
The Australian dollar experienced mostly negative movement over December, falling against a rising US dollar, finishing at US$0.724 with a decreased Trade Weighted Index of 63.9 on 31 December 2016. The Australian dollar depreciated against the US dollar (-2.0%), the Pound Sterling (-1.6%), and the Euro (-2.2%) but rose slightly against the Yen (+0.3%). On a trade-weighted basis, the local currency decreased 2.1% over the month.