Market summary - 30 June 2010 quarter
The quarter to 30 June witnessed growing turbulence in global financial markets as a result of instability in key European economies including Greece, Spain and Portugal. The fear of ongoing debt issues within Europe prompted concerns of an impending second recession and led to increased volatility in the key markets of equities, bonds and currency, as investors began to move away from riskier asset classes.
The Australian dollar was not immune to market pressures, with significant downward moves over the past two months quelling talk of potential parity with the US dollar.
Growing fears for the stability of global markets and the economic slowdown in the US inevitably flowed through to the superannuation industry, with national retirement savings falling more than $44 billion since the end of March. Despite this decline, average balanced super funds are still up 10 per cent in the year to date.
In other domestic news, the month of June saw the Reserve Bank of Australia (RBA) put a halt to further interest rate rises following consecutive increases of 25 basis points for April and May. Governor Glenn Stevens announced that future changes to the cash rate would depend on the economic outcomes of recent market uncertainty, and the extent of current inflationary pressures.
The market movements
- The Australian stock market returned -11.2% (S&P/ASX300 Accumulation Index) over the June quarter. It was a mixed result across the 12 ASX sectors with all but one posting negative results. Telecoms produced the only positive performance for the quarter returning 6.9%. The Industrial sector produced the largest negative result with -18.9%, followed by the Financial (ex LPT’s) sector with -15.1%, the Financial sector with -13.2% and the Information Technology sector with -12.6%. Overall the S&P/ASX 300 recorded a 13.13% return for the financial year to date.
- International stock markets returned -4.8% (MSCI World Ex Australia in $A (unhedged)) and
-11.2% on a fully hedged basis. The US stock market posted weak returns of -11.9% for the S&P500 and -10.0% for the Dow Jones index. A rough European economic environment also produced negative returns of -13.4% for the UK’s FTSE, -13.4% for the French CAC and -3.1% for the German DAX. The emerging markets posted mixed returns with the standout market being India’s BSE 200 index posting 2.2% for the quarter and a 27.2% return for the financial year to date.
- Fixed interest markets continued to post positive returns over the June quarter as improving credit conditions resulted in returns of 3.6% for the UBS Australian Composite Bond Index and approx 3.3% for global fixed interest via the Barclays Capital Based Aggregate Index (hedged to $A).
- The UBS Warburg Australia Bank Bill Index posted a 1.1% return over the June quarter.
Telstra Super's performance
Accumulation investment returns to 30 June 2010*
* These returns do not apply to Telstra Super RetireAccess members. Further details. Past performance is not a reliable indicator of future performance.
** This option was introduced on 1 July 2010 and as such, no investment returns are available. Notional returns have not been included as the structure of the option is not based on the performance of a single index.
Telstra Super RetireAccess investment returns to 30 June 2010*
* These returns do not apply to Accumulation members. Further details. Past performance is not a reliable indicator of future performance.
** This option was introduced on 1 July 2010 and as such, no investment returns are available. Notional returns have not been included as the structure of the option is not based on the performance of a single index.
A look back at the 2009/2010 financial year
The 2009/2010 financial year saw the global financial system begin to claw its way back following the extended fallout of the Global Financial Crisis. Although economic activity remained well below the peak levels of 2007 and 2008, the global economy as a whole demonstrated a relatively steady rate of expansion, particularly across the second half of the year.
Financial instability in Greece, Spain and Portugal provided headwinds to economic growth prospects in the wider European region towards the end of the year, which overflowed to some extent to the rest of the world.
The Asian region, including Australia, continued to increase in strength throughout 2009/2010. Growing domestic demand contributed to a number of east Asian economies recording double-digit Gross Domestic Product (GDP) growth, and strong export and industrial production figures during this period.
The United States welcomed positive growth in employment and labour participation throughout the year after significant declines in 2008/2009.
The speed of economic activity in Australia showed consistently strong growth throughout the year, as reflected by the Westpac–Melbourne Institute Leading Index. The index demonstrated ten months of accelerated economic growth following the start of the financial year, before hitting a 12.5 year high of 8.8% growth in March 2010. Westpac Senior Economist, Matthew Hassan said, “the year to March saw the sharpest upturn in the Leading index since the rebound coming out of the early 80s recession.”[1] Australian economic growth remained well above its long term trend of 3%.
The Australian dollar started the 2009/10 financial year sitting at $0.80 (USD), but spent much of the following twelve months hovering at the $0.90 (USD) mark. Although volatility in European markets prompted the exchange rate to drop back to $0.81 (USD) in early June, the value of the Australian dollar remained significantly higher than its post-float average of $0.75 (USD).
Funding pressures for international money markets increased towards the end of the financial year, but to a much lesser extent than in 2008/2009.
Predicted 2009/2010 superannuation returns have fallen slightly, and are expected to come in just under double digits, according to SuperRatings figures from 30 June 2010[2].
The road ahead
According to the Reserve Bank of Australia’s (RBA) Statement on Monetary Policy released in May, global output for 2010 is expected to increase by approximately 4.5%, before falling to 4% growth in 2011. While current turbulence in European financial markets could potentially dampen these predictions, it is hoped that the global economy will continue to expand at the relatively firm pace demonstrated so far this calendar year.
In Australia, strong growth in the mining and resource sectors is expected to drive GDP up by 3.5% in the coming financial year.
Despite uncertainty surrounding the impact of the proposed resources super profits tax, a boom in natural resources is expected to add $170 billion to export revenue in 2010/2011. This anticipated growth is expected to be largely driven by demand from China, with figures from the Australian Bureau of Agricultural and Resource Economics (ABARE) predicting the nation will account for increased revenue of at least $58 billion[3]. Further recovery in demand from other trading partners such as Japan and Korea is also anticipated.
While earlier predictions that the RBA would continue to increase interest rates in the coming months have largely been tempered by recent market volatility in Europe, further changes should not be ruled out.
In good news for potential job seekers, the Australian unemployment rate is predicted to continue to fall, providing further support to the view that the Australian economy will remain robust.
[1] Westpac media release: Leading Index still strong, 16 June 2010
[2] Super Ratings media release: June woes drop super fund returns below double digits, 30 June 2010
[3] Yeats, Clancy, ‘Miners tipped to win most from $202b export boom’, Sydney Morning Herald, 23 June, 2010