MARCH 2019 QUARTER MARKET OVERVIEW & REPORTING SEASON WRAP
By Paul Nicol
We are pleased to provide our Market Overview for the March 2019 quarter and our Reporting Season Wrap.
After a nasty December 2018 quarter when sentiment turned decidedly negative for the first time since February 2016, investment markets hit back strongly in the March 2019 quarter, erasing the losses of the December 2018 quarter, and in most instances pushing portfolio returns for the Financial Year to the 31st March 2019 into positive territory.
Index results for the March 2019 Quarter and FYTD (nine months to March 2019) are shown in the table below.
|March Quarter 2019||FYTD|
|Australian Shares (S&P/ASX 200 Accumulation Index)||10.89%||3.31%|
|International Shares (MSCI World ex–Aus in AUD)||11.47%||6.34%|
|A–REITs (S&P/ASX 200 A–REIT Accumulation Index)||14.75%||14.66%|
|S&P/ASX Small Ordinaries Accumulation Index||12.95%||-1.76%|
Other important figures at the end of the March 2019 compared to the start of the financial year were:
|RBA cash rate||1.50%||1.50%||Flat|
|90-day Bank Bill Swap rate||1.83%||2.07%||-11.60%|
|10-year Government Bond rate||1.77%||2.649%||-33.19%|
|Australian dollar||US 70.95c||US 74.05c||-4.19%|
Sentiment towards the share market improved dramatically in the March 2019 quarter as concerns about weakening global growth abated. Leading into 2019, investors were particularly preoccupied with a slowing Chinese economy and fears of a hard landing in the Chinese economy. Whilst China’s economy is slowing, it is not collapsing as the services sector remains strong. A further slowing of Chinese growth is likely in the short term, but policy stimulus is likely to see growth improve in the second half, ensuring Chinese growth in 2019 does not weaken dramatically.
At the start of 2019 investment markets were also concerned the US Fed would overtighten (lift US interest rates too high). Recent commentary from the US Fed on rates has turned more dovish with the strong likelihood that US rates will now remain on hold rather than increasing further.
As we indicated in our December 2018 quarterly market update, we suspected there had been an overreaction to fears of a Global economy slowing in the later part of 2018. Markets certainly hit back with a vengeance in the March 2019 quarter as these fears proved largely unfounded.
After a strong March 2019 quarter, share market valuations seem fair (neither cheap nor expensive), but corporate profits remain solid, if not slowly slightly. It is likely the June quarter will be far more subdued in terms of its return profile, as focus on the upcoming Federal Election will take centre stage.