Investment Performance Update
Download your copy of our Q1 Report for a detailed look at how the Mercer Super Trust performed in the three month to 31 March 2017.
Economy & Markets Update
The March 2017 quarter started on a slow note for markets, following the momentum which sprung up towards the end of the past quarter resulting from expansionary stimulus promises made by United States (US) President Trump. The enthusiasm had been replaced by uncertainty over January as investors began to question Trump’s capacity to pull through on his promises for a massive infrastructure spending plan backed by significant tax cuts to individuals and businesses. Markets regained some of the confidence over February and March but the quarter ended where it started with markets still carefully waiting on the anticipated spending plan announcement from the Trump administration.
As expected, the US Federal Reserve (Fed) hiked rates again at the end of the quarter to the 0.75% to 1.0% range in a move to head off increases to headline inflation. Another two rate hikes are expected over 2017. The speed of this rate normalisation will be a key factor in market behaviour over the next year. Under this environment, the Down Jones returned a favourable result of 5.2%, as did the S&P 500 Composite (up 6.1%) and the NASDAQ (up 9.8%). US Non-Farm Payrolls increased by around 178,000 per month on average and unemployment decreased slightly from 4.7% in December 2016 to 4.5% by March 2017.
Across to Europe, the region experienced a positive jolt over the quarter with the Eurozone composite Purchasing Managers’ Index (PMI) increasing to 56.4 in March. This level signifies a six year high and caps off the most successful quarter for the region’s economy since second quarter of 2011. Against this background, political processes kicked on with the United Kingdom (UK) enacting Article 50 of the Lisbon treaty in March and thus commencing negotiations to split from the European Union (EU). Another development came with the surprise result in the Dutch election as far right candidate, Geert Wilders, was defeated by the Conservative Prime Minister, Mark Rutte. The result was the first to come from a host of elections with France, Germany and possibly Italy set to conclude over 2017. The result signals that anti-EU and anti-immigration dispositions may not be as strong as they appear in Europe, shifting future outlooks for European markets.
In China, the premier exuded positive signals after outlining the government work plan for 2017. Key outlines of the plan displays China’s inclination to maintain stabilised growth levels with a gross domestic product (GDP) target of 6.5%. In the wake of this news is the upcoming 19th National Communist Party Congress election, with current President, Xi Jinping, expected to hold on to the leadership. Once the leadership has been settled, more strategic structural reforms are expected to alleviate global uncertainty surrounding the Chinese economy’s over-reliance on credit to stimulate growth. Real estate, trade and tourism will be key areas to watch for Australian investors in the context of these changes. Over the quarter, Chinese GDP increased to 6.8% year-on-year (YoY) for Q4 2016, above expectations of 6.7% and above 6.7% recorded over the year to Q3 2016.
Domestically, the S&P/ASX 300 Index started the quarter on a weak note with a -0.8% movement in January, before growing 2.2% in February and a further 3.3% in March, for a total 4.7% growth for the quarter and taking the year return to March to 20.2%.
The December quarter consumer price index (CPI) decreased to 0.5% for the quarter, from 0.7% for Q3 2016, but increased 1.5% for the year, slightly below expectations for 1.6%. The December quarter GDP data release showed a growth of 1.1% for Q4, up from the -0.5% in Q3. Following these figures, the RBA maintained the cash rate at 1.50%, maintaining caution around the potential housing problem that continues to plague sentiment in the Australian economy.
Commodity prices experienced extremely volatile movements over the quarter, with iron ore prices surging to $92 per metric tonne in February before dropping down to $81 in March, for an increase of 1.3% over the quarter. Gold prices increased by 7.8% per ounce over the quarter, but the movement was offset by oil dropping -7.2% per barrel.
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