Global equity markets retreated in August, giving back some of the recent strong returns of prior months. The value of the Australian Dollar fell against a basket of major foreign currencies, increasing overseas investment returns when measured in Australian dollar terms. Australian fixed interest markets posted positive returns whilst international markets were down, reflecting a mixed environment for bond yields.

Former US President Donald Trump’s legal woes continue, with fresh charges of attempting to overturn the 2020 presidential election result brought in early August, followed by charges relating to alleged efforts to overturn the results of the 2020 election in the state of Georgia. The Georgia charges are arguably the most serious yet for the former President, as they carry mandatory jail time and as it is a state matter his presidential protections may not apply even if he is re-elected at the November 2024 election.

The BRICS, a grouping of the world’s largest developing economies, had its first membership expansion since 2010 in August, with Saudi Arabia, the UAE, Egypt, Iran, Ethiopia, and Argentina all being invited to join the group of nations on January 1^st, 2024. The expanded membership is expected to increase the BRICS’ geopolitical heft and negotiating power.

The latest estimate of the number of excess deaths in China since the country ended its COVID-Zero policy in December 2022 has been put at around 1.9 million people in just two months, well above the official count of some 60,000. The harrowing statistic comes amidst serious economic problems facing the world’s second largest economy, with policymakers taking a range of measures to try and underpin economic growth including rate cuts and overtly encouraging greater bank lending and support for the stock and currency markets.

The Board of the Reserve Bank of Australia (RBA) met on 1 August to discuss global and domestic economies and markets, and to review their monetary policy settings. The RBA decided to hold the cash rate target at 4.10%. On 5 September, whilst not in the timeframe captured by this commentary, the RBA stayed on hold, maintaining the cash rate at 4.10%.

Meanwhile, there was no meeting of the Federal Reserve (the Central Bank of the United States) in August, with policymakers instead addressing the market at the annual Jackson Hole summit. Federal Reserve Chairman Powell’s remarks indicated that the Federal Reserve is likely to proceed “carefully”, opening the door to interest rates remaining on hold at September’s meeting, and that policy is increasingly shifting towards managing risks.

Equities

Major developed foreign equity markets fell in August. Developed markets (excluding Australia) returned -1.9% on a currency-hedged basis (and +1.6% unhedged in Australian dollar terms, reflecting the substantial fall in the value of the Australian dollar). The best performing of the major foreign markets was the US stock market (S&P 500 Index) returning minus 1.5% (in local currency terms) in August.

The Australian stock market (S&P/ASX 200 Index) was down during August, albeit less so than global peers, returning -0.7%, with 9 out of 11 industry sectors experiencing negative returns. The Consumer Discretionary sector was the standout performer, returning +4.6% for the month, whilst the worst performing sectors were Utilities and Consumer Staples with returns of -4.3% and -4.1% respectively.

From a foreign developed market perspective, 10 out of 11 sectors produced negative returns for the month. Energy was the exception, returning +2.6%, whilst the worst performing sector was Utilities which fell 4.8%.

Bonds

The Australian government bond yield curve steepened in August, with 2-year yields falling (-0.14%) and 10-year yields modestly lower (-0.03%) to finish the month at 3.79% and 4.03% respectively. Australian fixed interest returns for August were +0.7% (Bloomberg AusBond Composite Index).

Over August, movements in major developed global government bond yields were more mixed. The Bloomberg Global Aggregate Index (Hedged) was down 0.3%, largely reflecting the rise in US government bond yields (10-year yield rose by 0.15%) whilst movements in most other markets were more modest.

Currencies

The Australian Dollar was down substantially against most major foreign currencies in August, as the outlook for the domestic economy weakened and concerns about China’s post-COVID economic recovery grew. The Australian Dollar decreased by 2.1% against the Euro and 1.2% against the Japanese Yen.

The Australian Dollar fell the most against the United States Dollar (-3.5%), finishing the month at 0.6484 US Dollars, down 2.3 US cents over the month.

Commodities

Commodity prices continued to be volatile over August and the S&P GSCI Commodities Index ended the month down 0.3%. The price of WTI oil and Brent oil rose 2.2% and 1.5% respectively. Of the precious metals, the price of gold fell 1.3% and the price of silver fell 1.2 % in August.

Performance of key markets over relevant time periods to 31 August 2023:

Asset class	Index	Month* (% change)	FYTD* (% change)	1 year* (% change)
Australian Shares	S&P/ASX 200 Acc. Index	-0.7%	6.7%	2.1%
International Shares	MSCI World Ex Aust Unhedged A$	1.6%	21.9%	3.7%
International Shares	MSCI World Ex Aust Hedged A$	-1.9%	15.8%	0.9%
US Shares	S&P 500 Index	-1.6%	18.7%	1.6%
UK Shares	FTSE 100 Index	-2.5%	3.0%	-0.2%
Japanese Shares	Nikkei 225 Index	-1.6%	26.5%	-1.6%
Australian Listed Property	S&P/ASX 200 A-REIT Index	2.3%	10.4%	6.2%
Australian Fixed Interest	Bloomberg AusBond Composite Index	0.7%	2.8%	1.3%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.4%	2.5%	0.7%
Currency	AUD/USD	-3.5%	-4.8%	-2.7%

*Percentage changes in returns are for periods over the month of August (Month), calendar year to date 31 December 2022 to 31 August 2023 (CYTD) and the financial year to date 30 June 2022 to 31 August 2023 (FYTD). Past performance is not an indication of future performance.

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