A “solid” start to financial year, but markets still nervous

Chant West, superannuation fund investment returns, September quarter 2016/17Financial year 2016/17 has started with a “solid” quarter, but markets are nervous ahead of events in the US, according to Chant West.

The firm said that the median growth fund returned 3.1% over the September quarter. Australian shares were up 5.2% and international shares were up 4.8% on an hedged basis, but only 2% unhedged due to a stronger Australian dollar. Listed property was “mixed”, with Australian REITs down 1.9% while global REITs were up 1.3% for the quarter.

“This was a solid quarter overall but the performance was far from consistent,” said Chant West director, Warren Chant.

“Of the 3.1% gain, 2.7% was achieved in July. Since then we’ve had two months of fairly flat returns, and that’s mainly because investors are preoccupied about US interest rates and when the next rate hike will be,” he said.

“This nervous mood is likely to continue while there’s so much uncertainty about global interest rates, the outcome of the US election and the downstream consequences of Brexit. Funds are finding it hard to identify undervalued assets that will deliver real returns, and this is compounded by the pressure they’re under to reduce investment fees. They’re going to find it tough to meet their long-term objectives, and members need to remain patient in the face of returns that are likely to be lower than what they’re used to.”

“Markets in the Eurozone were helped by a strong earnings season which saw a surprising number of companies exceeding market expectations. However, economic growth remains lacklustre. In Britain, there’s still no clarity about what the Brexit vote will lead to in the medium to long term, but the political backdrop has stabilised somewhat since Theresa May became Prime Minister. Additionally, the Bank of England launched a series of monetary easing measures.

“Closer to home, there remains concern over the pace of growth of the Chinese economy where further monetary easing is expected. Meanwhile, back in Australia, the RBA kept interest rates on hold at 1.5%, with a further cut this year remaining a possibility.”

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