Investors experienced a setback in October 2018 as equities and listed real assets delivered significant negative returns over the month. Overseas developed shares (hedged) returned -6.9%, as equities suffered through the worst month in over seven years. Losses were particularly severe across small cap and technology stocks. Locally, Australian small caps produced the lowest asset class performance (-9.6%) over the month.
Rising interest rates, the strengthening of the United States (US) dollar (USD) (up 2.1%), ongoing trade tensions, the slowdown in Chinese growth, uncertainties surrounding the Brexit negotiation and the Italian budget dispute are all factors that impacted market sentiment during the month, resulting in the extensive sell-off.
The Australian equity market outperformed its hedged international counterpart index over the month, despite the S&P/ASX 300 Index decreasing 6.2%. The S&P/ASX 50 was the strongest relative performer, decreasing 5.4%, while the S&P/ASX Small Ords was the weakest, decreasing 9.6% over the month.
The best performing sectors were Real Estate (-3.8%) and Utilities (-4.0%), while the weakest performing sectors were IT (-11.4%) and Energy (-10.3%). The largest positive contributors to the return of the index were Newcrest Mining, Evolution Mining and Woolworths, with absolute returns of 6.3%, 12.7% and 1.3% respectively. In contrast, the most significant detractors from performance were BHP, NAB and ANZ with absolute returns of -6.6%, -8.7% and -7.5% respectively.
The broad MSCI World ex Australia (NR) Index decreased 6.9% in hedged terms and 5.4% in unhedged terms over the month, as the Australian dollar (AUD) depreciated against the US dollar. The strongest performing sectors were Utilities (+1.4%) and Consumer Staples (+0.6%), while Industrials (-8.5%) and Energy (-8.2%) were the worst performers. In AUD terms, the Global Small Cap sector was down 8.0% and Emerging Markets was also down 6.8% over October.
Over October, the NASDAQ decreased 9.2%, the S&P 500 Composite Index decreased by 6.8% and the Dow Jones Industrial Average decreased by 5.0%, all in USD terms. In local currency terms, major European equity markets experienced negative returns as the FTSE 100 (UK) decreased 4.9%, the CAC 40 (France) decreased by 7.2%, whilst the DAX 30 (Germany) decreased by 6.5%. In Asia, the Japanese TOPIX (-9.4%), the Chinese SSE Composite (-7.7%), the Hang Seng (-10.0%) and the Indian S&P BSE 500 (-3.9%) decreased over October.
The AUD depreciated against the USD over October, finishing with a Trade Weighted Index of 61.9 on 31 October 2018. The AUD appreciated against the Pound Sterling (+1.0%) and the Euro (+0.8%) and depreciated against the Yen (-2.1%) and the USD (-2.0%). On a trade-weighted basis, the local currency decreased 0.5% over the month.