Market Summary | August 2018

Market Overview

August was a relatively strong month for markets, returns for key asset classes were strong, with equities leading the way. Notably international equities had an exceptional period with the MSCI World Ex Australia Index returning 4.14% for the month of August.

A record-breaking month for equities as the S&P 500 recorded its longest rally ever having gone 3,453 days without a major correction (-20%). Among the best performers so far this year are Netflix, Twitter, and the watchmaker Fossil. Many analysts are suggesting that US Stocks may continue to rise over the course of this year although are beginning to question the valuations of some of the more growth orientated stocks.

United States

US equities advanced in May, with economic and earnings data proving resilient enough to allow investors to shrug off an escalation in trade sanction uncertainties. Late in May, the Trump administration confirmed that it would proceed with steel and aluminium trade tariffs for Canada, Mexico and the EU, and also withdrew from the Iran nuclear deal. The more combative stance stoked fears of retaliation from major trade partners and did unsettle markets.

The retaliation from the EU saw tariffs imposed on a raft of US imports from Harley Davidson motorbikes to bourbon. There were no tariffs on Chinese goods as trade talks continued, but it now appears that the US will impose 25% tariffs on $50bn worth of Chinese imports shortly after mid-June, with Treasury Secretary Steve Munchin saying that a final list of goods would be published by the 15th of June. However, the positive tone set by economic data over the month allowed markets to stay ahead overall.

Asia

The Chinese market continued to slow as the Trump Tariffs continued to weaken the Chinese economy, however the real damage was done in June, in the anticipation of the tariffs. The Chinese market rose a modest 1.0% after falling 7.0% in the previous month. The tariffs war has had a greater impact on volatility in Chinese markets than US markets.

The Japanese market picked up, continuing a period of growth. This was due to strong contributions from the manufacturing sector as well as tensions across the Korean peninsula easing.

Japan’s Nikkei 225 Index returned 1.1%,
Hong Kong’s Hang Seng fell 0.5%
China’s CSI 300 Index rose 1.0%

Europe

Turkey has been on everyone’s lips in recent months as the climate within the emerging economy continues to worsen. The Turkish market is down over 20% in the calendar year to date. The situation undoubtedly represents a risk, but it is important to note that emerging market economies, while sharing some common factors, are diverse in their own right.

There is now only 7 months until the UK is scheduled to leave the EU, however there is increasing confusion and uncertainty as to how this will be executed. With negotiations continuing, any hope of a deal that doesn’t negatively impact markets is becoming increasingly unlikely.

Across Europe broadly the month of August was relatively quiet.

The UK’s FTSE 100 fell 1.50%
Europe’s MSCI index fell 0.06%

Australia

Australia endured yet another change in leadership in August, with Scott Morrison emerging victorious following a leadership spill. The political shambles had little effect on the Australian market with equities remaining relatively steady over the duration of the spill.

At its August meeting, the RBA continued to hold rates at 1.50%. However, despite the RBA announcing rates were on hold, a number of Aussie banks decided to lift interest rates independently of the RBA. While household debt and sluggish wage growth remain a concern, the business sector is enjoying favourable conditions, especially in the manufacturing, construction and business services industries.

Downside risks remain, with a tightening in lending conditions, partly in response to the Royal Commission into Financial Services, constraining households and the possibility of a sharp decline in house prices posing a challenge to the prudential system. House prices have been falling for the past nine months in Sydney and auction clearance rates remain in the low-60% range.

The ASX 200 was up 1.42% in August off the back of strong performances from the telecommunications (+7.9%), Healthcare (+10.7%) and Technology (+12.9%) sectors. TPG (+50.0%) and Vodafone announced a merger that will provide a major third challenger to Telstra (+9.2%) and Optus, with a combined enterprise value of $15 billion. Another notable performer was Appen (+41.2%) which announced revenue growth of 106% in H1 2018 driven by both organic growth and its Leapforce acquisition.

Market Returns (last 12 Months)

Markets have had a positive 12 months. Returns have been positive in all growth asset classes. Equity markets generally have performed well while fixed income and cash returns remain at historically low levels. The month of August provided positive returns across the asset classes with stronger performance coming from International & Australian Equities.

The above graph summarises the performance of the major financial markets and gives you an indication of how these markets performed over the last 12 months.  The graph does not reflect your actual portfolio performance.