July, 2023
Equity markets continued to grind higher, with global shares rising for a seventh consecutive month in AUD terms. Inflation fell further which has resulted in expectations, both here and in the US, that rates might now have peaked. Combined with the resilient jobs market, this has shifted market sentiment away from a possible recession to a soft landing. Australia's S&P/ASX 300 index gained 2.9% and is now up 7.3% for 2023 to date. Energy stocks were the key driver of Australia's performance in July, with a 16% rise in oil prices leading the sector higher as Russia cut exports; stronger-than-expected economic growth in the US was additionally supportive. Energy stocks gained 8.4% last month for the best performance, with financials (+4.9%) and Tech (+4.8%) also outperforming.
Defensive sectors lost value, with healthcare (-1.5%) and consumer staples (-1.1%) the weakest. The market had to digest a number of quarterly production reports from mining companies in July, a few common factors included solid production numbers, increases in capital expenditure and softening in some pricing, all of which contributed to fairly cautious guidance. Iron ore prices have held up quite well despite the slowing China economy and a property market there that has thus far failed to rebound. Lower inflation in the June quarter took some pressure off the RBA and was enough of a signal for it to leave rates on hold for another month, only the second since the hiking cycle began. Annual CPI for the June quarter came in at 6%, below forecasts and comfortably below the 7 of the prior quarter.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fs_FR_MMF1502AU-6.pdfJune, 2023
Equity markets rose in June, continuing to defy expectations throughout 2023 as expectations of a paradigm shift in AI drove tech stocks even higher and bond yields stabilised as inflation fell from peak levels. Australia's S&P/ASX 300 Index delivered a 1% return over the June quarter including dividends, underperforming both the MSCI World (+6.8%) and the US S&P 500 (+8.8%).
Australia's lower exposure to tech stocks and greater reliance on China for its exports led to relative underperformance, and was further exacerbated by huge outperformance within the US megacaps tech stocks. The slowing Chinese economy weighed on its sharemarket, with the Shanghai Composite falling 6.9% in AUD terms, contributing to weaker performance in Emerging Markets. Sector performance in Australia was led by Tech (+18%), Utilities (+4%) and Energy (+3.8%) while Healthcare (-3.1%), Materials (-2.7%) and Consumer Discretionary (-1.9%) were the laggards. Despite a rebound in the miners and in some commodity prices in June, this wasn't enough to make up for sharper falls earlier in the quarter.
Iron ore fell 11% to USD108 over the quarter, yet rebounded 10% last month on hopes China stimulus will ignite growth, although measures such a 10bp rate cut and EV subsidies have thus far been insufficient.
Oil prices fell 6% over the quarter to USD71/bbl. Bond yields have traded in a narrow 50bps range this year, with US bond yields at 3.83%, only 4bps lower than where they started the year at 3.87%.
Consumer confidence in the US rebounded sharply, helped by signs that inflation is cooling and a willingness for people to continue spending if still employed. The spending shift from goods to services there continued with the travel industry still reaping the benefits of pent-up demand for holidays post Covid, although here the Australian consumer outlook painted a less rosy picture, with cost of living pressures and higher mortgage rates hurting the domestic retail sector. After lifting rates in May and June, the RBA kept rates on hold at 4.1% at the start of July, the second pause since this rate cycle started and possibly an acknowledgment that 13 months of hikes is helping to reign in spending and cool inflation.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fs_FR_MMF1502AU-5.pdfApril, 2023
Equity markets shrugged off risks of a credit crunch amid further US regional bank failures, and continued to strengthen in April, with Australia's S&P/ASX 300 index closing up 1.85% including dividends. Global markets have rallied this year despite recession fears, although market breadth has been worryingly narrow in the US, with two stocks (Apple and Microsoft) now accounting for 13% of the entire US S&P 500 index. The MSCI World Index gained 2.9% in AUD terms, and has risen 12.3% year-to-date, driven by a strong rebound in Europe and 7 mega-cap Tech stocks doing the heavy lifting, and contributing over 90% of the US performance.
The only blemish on Australia's performance in April was weakness in mining stocks. BHP fell 5.8%, capping off a month to forget in the Materials, the sector falling 2.6% and the only sector to lose value in April. Iron prices came off lofty levels, falling 12% to $US106 per tonne as China demand softened and inventory levels rose at steel mills there. China's weaker-than-expected peak construction period and the intention of Chinese authorities to crack down on speculative pricing contributed to the spot iron ore price being soft. A number of quarterly production reports, including from Rio Tinto and Mineral Resources, also underwhelmed.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fs_FR_MMF1502AU-4.pdfFebruary, 2023
The strong start to 2023 for equities came to an end in February, with most markets other than Europe weaker in their own currencies as company results pointed to a slowdown in earnings momentum. Stronger employment numbers in the US resulted in expectations for the timing of interest rate cuts being pushed further out, and bond yields resumed their upward trajectory. Domestically, an additional 25bp rate hike from the RBA put further pressure on the consumer sector and pushed the S&P/ASX300 index (including dividends) down 2.6%. Offshore market returns were helped by a sharp 4.6% fall in the Australian dollar, which meant the MSCI World (AUD) and the US S&P 500 index (AUD) both gained 1.7%, despite falling in local currencies.
European and UK shares continued to rebound strongly, with the UK's FTSE 100 index reaching an all-time high last month and European shares attracting inflows given their cheaper relative valuations. Volatility in Asian markets persisted with Hong Kong notably weaker, dragging down emerging markets indices. Back in Australia, performance was largely a reaction to H1 2023 earnings results with a near record level of earnings misses, but also an elevated number of earnings beats, this bar-bell resulting in relatively few inline results. At a sector level, utilities (+2.3%), technology (+1.9%) and industrials (+1.1%) all outperformed while materials (-7%), financials (- 3.4%) and consumer discretionary (-1.8%) lagged the most.
Banks were softer following their results and despite their numbers coming in largely as expected, with the market becoming concerned over peaking net interest margins. Higher cost pressure was a thematic across the large miners, with their ability to sustain high dividends at risk. Adding further pressure to resources was weakness across the board in commodity prices. Oil prices fell 2% to USD83/bbl, while iron ore also fell to USD117/t after rallying more than 30% the prior three months. Lithium spot prices weakened on signs of rising battery inventory and EV price cutting in China, while copper also lost 2.8%. US 10 year bond yields jumped 42 basis points to 3.92% on stronger economic data, particularly the solid US jobs print. Australian 10 year yields rose 30 basis points to 3.85% as the RBA lift rates a further 25 basis points, a ninth consecutive rise.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fs_FR_MMF1502AU-3.pdfDecember, 2022
Despite a pull-back in markets during December, the final quarter of 2022 was a positive one for equities as early signs of peaking inflation led to expectations that the pace of rate hikes may have also peaked. The surge in bond yields throughout 2022 also stabilised, providing support to equity markets. Australia's S&P/ASX 300 index (including dividends) gained 9.1% over the quarter, outperforming global developed markets (MSCI World +3.2%) including the US (S&P 500 +1%).
Europe (Stoxx 600 +13%) had a strong finish, rebounding as the risk of a potential energy crisis heading into Winter was mitigated by a warm winter and reasonable gas storage levels. Although 2022 proved a very tough year in emerging markets, as China's prolonged Covid lockdowns combined with weakness in the property sector weighed on Chinese and Hong Kong listed stocks, there was a glimmer of hope towards the end of the year as government officials announced some easing measures.
The China re-opening looks set to be one of the more dominant themes in 2023, with the market already in 'look-through' mode as iron ore rose sharply in Q4 2022. This is of course in contrast to the rest of the world where the effect of multiple rate hikes and inverted yields curves could signal forthcoming recessions.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fs_FR_MMF1502AU-2.pdfNovember, 2022
Although the September quarter produced positive returns in Australian dollars for many markets, including Australia and the US, the underlying sentiment remained bearish as Central Banks globally continued to raise interest rates to address inflation printing at persistently high levels. Equity market returns in local currencies were much less flattering as the US dollar continued to strengthen against most other major currencies.
Australian shares gained 0.5% including dividends over the quarter, although a 6.3% fall in the month of September dampened the mood as commodity prices fell and global recession fears increased. In local currency, US and European stocks both lost 5% while China and Honk Kong both fell more than 20% as Covid lockdowns weighed on economic growth, and further exacerbated with a weakening Chinese Yuan against the USD.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fs_FR_MMF1502AU-1.pdfSeptember, 2022
Although the September quarter produced positive returns in Australian dollars for many markets, including Australia and the US, the underlying sentiment remained bearish as Central Banks globally continued to raise interest rates to address inflation printing at persistently high levels. Equity market returns in local currencies were much less flattering as the US dollar continued to strengthen against most other major currencies. Australian shares gained 0.5% including dividends over the quarter, although a 6.3% fall in the month of September dampened the mood as commodity prices fell and global recession fears increased. In local currency, US and European stocks both lost 5% while China and Honk Kong both fell more than 20% as Covid lockdowns weighed on economic growth, and further exacerbated with a weakening Chinese Yuan against the USD.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fs_FR_MMF1502AU.pdfAugust, 2022
Australian equities outperformed most other global markets in August, despite the backdrop of hawkish commentary from the US Federal Reserve dashing hopes that the pace of interest rate rises would slow down soon. A generally better-than-expected corporate earnings season, along with a large amount of dividends hitting investors accounts, led the S&P/ASX300 index (incl dividends) 1.2% higher last month. European shares fell 5.3% as energy supply issues continued to weigh on sentiment, while US shares dropped 4.2% as bond yields resumed their upward trend after falling the previous month. Australia's greater composition of energy and mining companies provided a buffer of performance relative to most other markets, with investors benefitting from exposure to rising commodity prices in addition to receiving relatively high dividend yields distributed from mining and financial stocks.
August saw most companies report H2 2022 earnings which were generally better than expected, and with investor positioning bearish into the results, this led a rotation from defensives back into domestic cyclicals. The median company beat consensus by 0.7% on H2 net profits, although cuts to FY23 earnings estimates gathered pace with Materials seeing the most aggressive cuts, while Building Materials were revised lower on further input cost pressures. Conversely, insurance stocks received large upgrades with rising rates generally supportive for the sector.
US bond yields, after a retreat in July, continued their march higher as US Fed Chairman Jerome Powell delivered a short address at Jackson Hole, putting to bed any speculation that rate hikes are close to reaching their goal of lowering inflation. US 10 year yields rose 54 basis points to 3.19% while Australian 10 year yields also rose by the same margin to close at 3.60%. US 2 year yields rose 61 basis points to 3.49%, inverting the 2yr10yr part of the curve. Concern about energy continued to weigh on European markets as it heads into Winter, and the Euro fell below parity with the $US, having depreciated by 12% this year. The Nordstream gas pipeline, which runs some 1,200 km under the Baltic Sea between Russia and Germany and provides almost half of Europe's total gas supply, was closed by Russia for maintenance in August, adding further to anxiety there. With European gas prices having more than quadrupled so far this year, many industries have been forced to shift production offshore. Energy prices undoubtedly remain the biggest cause of an increasingly likely recession in Europe, as affordability pressures hurting both households and industry.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/192180504.pdfJune, 2022
After 10 years of flat or falling interest rates in Australia, rising inflation finally gave way to rate hikes domestically, leading equities to their biggest quarterly loss since the Pandemic. The S&P/ASX 300 index, including dividends, fell 12.2% over the June quarter underperforming global markets. After a relatively strong start to the year, June was a month where crowded sectors like materials and financials bore the brunt of the sell-off as commodity prices fell and rate hikes fuelled concern over the housing market and consumer demand more broadly. With the Australian Dollar falling 8% to USD0.69, this currency benefit helped offshore markets in AUD terms with Europe (-8%), the US (-9%) and Emerging Markets (-5%) all outperforming Australian shares.
One of the largest swing factors in markets currently is the outlook for China, trying to navigate out of Covid lockdowns while at the same time addressing a weak housing market. Its desire to stimulate and increase money supply has put it out of sync with most other global markets entering a tightening cycle. Appearing somewhat more immune to the rate hiking seen in most other regions, there was a rotation back into China and Hong Kong. The Shanghai Composite index was up 11% in June in $A terms, although it is still -6% year to date. On a sector level, only Energy and Utilities posted small gains over the quarter, with the defensive Healthcare and Consumer Staples also outperforming. Technology and Property stocks were the weakest sectors, with rising rates shining a spotlight on valuations. Banks were under pressure given the looming stresses in the housing market and construction industry, offsetting any benefit to net interest margins from rising rates. Weakness in Materials (-16.7%) was a large driver of broader market declines as commodities fell, finally cracking on recession fears and the outlook for weaker demand under this scenario.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/190341958.pdfMay, 2022
Equity markets had much to contend with over the March quarter: rising interest rates, the Russian invasion of Ukraine, China reentering lockdowns, slowing earnings growth and labour and commodity shortages to name just a few of the risks. Despite numerous headwinds, Australia's S&P/ASX 300 index, including dividends, gained 2.1% over the quarter to be among the top performers, alongside other commodity producers Canada (+2.2%) and Brazil (+33%). European stocks (Stoxx 600 - 11.7%) and the US (S&P 500 -7.7%) both suffered losses in AUD terms, with Europe in a tough geography and the US hampered by a large sell-off in highly priced tech stocks. Sector performance was driven by Energy (+25%) Utilities (+12.7%) and Materials (+11.8%) while Tech (-14%), Consumer Discretionary (-11.4%) and Healthcare (-10.7%) all lagged as the rotation into cheaper cyclicals continued along with rising bond yields. Earnings season was somewhat overshadowed by the macro, and while companies beat earnings estimates in aggregate by approximately 2%, it was clear that earnings momentum is slowing with only a few sectors in clear upgrade mode, primarily commodity-related sectors Energy and Materials. Other sectors experienced overall downward earnings revisions in March, indicating that underlying earnings momentum has weakened. Supply chain and labour constraints were a consistent theme among results, with many companies intentionally building up inventories to get ahead of supply chain delays. Bond yields continued to rise, with the US 10 year government yield climbing 83bps to 2.34%, and 2s-10s yield curve almost inverted as the 2 year yield reached 2.33%. In Australia, the 10 year bond yield rose 117bps to 2.84%. A stronger AUD was also supportive, or perhaps the result, of stronger commodity prices with the currency rising 3% to close at USD0.75.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/189242968.pdfJuly, 2021
Equity markets strengthened over the June quarter, helped by a rally in growth stocks as bond yields moved lower. The retracement in yields appeared to be more a reversionary move after significant increases in previous months amidst stronger business conditions when the market prematurely priced in US rate hikes in 2023.
Australian shares gained 7.9% (8.5% including dividends) and outperformed global markets over the quarter, with the MSCI World Index rising 7.3% in USD, although was a little weaker than the US S&P 500 which rose +8.2% in USD. Japan was a notable underperformer over the quarter as emergency lockdowns due to rising Covid cases and the tech fallout in mid May hampered returns. On a sector level in Australia, tech and consumer discretionary stocks were the best performers, rising 12.1% and 11.5% respectively. Materials also rallied 9.5% as commodity prices continued to strengthen. Utilities (-2.3%) and Energy (-5.8%) were the worst performers with energy stocks lagging despite a sharp rally in oil prices.
Global bond yields fell during Q2, putting an end to a six month rising trend as the global economy recovered sharply post pandemic, with a cyclical recovery underway. After yields ran up sharply in the prior quarter, the US 10 year bond yield dropped 27 bps to 1.47% while yields on Australian 10 year bonds followed a similar trajectory, falling 26 bps to close at 1.53%. The Australian dollar came under pressure at the end of the quarter despite further strength in commodities, losing 3% in June against the USD to close just below US75c. A slightly more hawkish tone in the US led to USD strength with the dollar index (DXY) gaining 3% in June.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/179488387.pdfApril, 2022
Equity markets had much to contend with over the March quarter: rising interest rates, the Russian invasion of Ukraine, China reentering lockdowns, slowing earnings growth and labour and commodity shortages to name just a few of the risks. Despite numerous headwinds, Australia's S&P/ASX 300 index, including dividends, gained 2.1% over the quarter to be among the top performers, alongside other commodity producers Canada (+2.2%) and Brazil (+33%). European stocks (Stoxx 600 - 11.7%) and the US (S&P 500 -7.7%) both suffered losses in AUD terms, with Europe in a tough geography and the US hampered by a large sell-off in highly priced tech stocks.
Sector performance was driven by Energy (+25%) Utilities (+12.7%) and Materials (+11.8%) while Tech (-14%), Consumer Discretionary (-11.4%) and Healthcare (-10.7%) all lagged as the rotation into cheaper cyclicals continued along with rising bond yields. Earnings season was somewhat overshadowed by the macro, and while companies beat earnings estimates in aggregate by approximately 2%, it was clear that earnings momentum is slowing with only a few sectors in clear upgrade mode, primarily commodity-related sectors Energy and Materials. Other sectors experienced overall downward earnings revisions in March, indicating that underlying earnings momentum has weakened. Supply chain and labour constraints were a consistent theme among results, with many companies intentionally building up inventories to get ahead of supply chain delays.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/188177199.pdfOctober, 2020
Australian equities were the standalone out performer within global developed markets, with the S&P/ASX 300 index gaining 1.9% in October. The rebound from the September weakness helped close some recent underperformance of Australian shares relative to other global markets. Further accommodative policy from the RBA, and a 're-opening' theme emerging as COVID cases continued to decline helped drive consumer confidence and in turn a +500 basis point outperformance over the MSCI World Index (- 3.1% in USD terms).
In stark contrast to Australia, European shutdowns amid a harsh Covid second wave dragged Euro stocks down 5.2% over the month. Despite domestic tech stocks being the best performers in October (+8.6%), the retreat in US mega-cap tech also contributed to stronger relative returns as the tech heavy US Nasdaq fell 2.3%. Financials (+6.3%) and Consumer Staples (+4.6%) also drove gains, while Industrials (-3.5%) and Utilities (-1.5%) dragged on index performance. Bond yields in the US rose sharply, with the yield on US 10 year Treasuries rallying 28 basis points to close at 0.87%. Australian yields had a flatter month, rising by 5 basis points to close at 0.83%.
Further QE measures from the RBA in addition to a rate cut continued to drag yields lower into November. The US dollar was largely flat over the month (DXY +0.2%) but has continued to weaken during the US election outcome as both equity markets and gold rebound. The AUD fell 1.9% against the US as dovish RBA commentary increased the likelihood of a rate cut, which occurred during their November meeting. Commodities were a bit softer in October, with iron ore spot prices falling 2.6% to $117 and Brent Oil futures declining 11.3% to USD38/bbl on fears of demand destruction as European countries head back into lockdown and supply increases from Libya. Gold prices decreased slightly from $1890/oz to $1,880/oz but are still close to record highs.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/162703981.pdfasset_class: Multi-Asset
asset_category: 21-40% Growth Assets - Diversified
peer_benchmark: Multi-Asset - 21-40% Diversified Index
broad_market_index: Multi-Asset Moderate Investor Index
manager_contact_details: Array
ticker: MMF1502AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://onepathsuperinvest.com.au/_doc/fs_FR_MMF1502AU/fs_FR_MMF1502AU.pdf
fund_features:
OnePath Conservative Trust aims to achieve returns (before fees, charges and taxes) that on average exceed inflation by at least 1.5% p.a., over periods of ten years or more. The fund invests in a diversified mix of Australian and international assets with a strong bias towards defensive assets. The fund blends active and passive management styles from a selection of leading investment managers.
structure: Managed Fund