Following the late-June sell off driven by Brexit uncertainty, major equity markets quickly resumed the risk-on episode that encapsulated the months leading up to the vote. A strong consensus has emerged that the direct economic impact of the vote will be largely confined to the United Kingdom (UK), with only limited spillover into the European Union (EU), and even less to the rest of the world. This rebound meant a strong July MSCI World ex Australia index return of 4.1% for hedged Australian investors.
The Australian equity market was strong over July, with the S&P/ASX 300 Accumulation Index returning 6.4% for the month. There were positive returns across the market cap spectrum, with the weakest relative performer being the ASX 50, returning 5.8% for the month. The best performing sectors were Consumer Discretionary (+8.9%) and Consumer Staples (+8.6%). The weakest performing sectors were Energy (+0.2%) and IT (+3.9%). The largest positive contributors to the return of the index were Westpac Group, ANZ and CBA, with absolute returns of 6.3%, 7.8% and 4.0% respectively. In contrast, the most significant detractors from performance were Cimic Group, Santos and Origin Energy with absolute returns of -18.0%, -5.4% and -3.9% respectively.
The broad MSCI World ex Australia Index was up 4.1% in hedged terms and 2.0% in unhedged terms over the month, as the Australian dollar appreciated against major currencies over July. The strongest performing sectors were IT (+6.0%) and Materials (+4.5%), while Energy (-4.0%) and Consumer Staples (-1.8%) were the worst performers. In Australian dollar terms, the Global Small Cap sector rose 3.4% while Emerging Markets returned 2.9%. Over July, the NASDAQ returned 6.6%, the S&P 500 Composite Index returned 3.7% and the Dow Jones Industrial Average returned 2.9%, all in USD terms. European markets also experienced strong returns, with the FTSE 100 (UK) up 3.4%, DAX 30 (Germany) up 6.8% and the CAC 40 (France) up 4.9%. In Asia, the Indian BSE 500 was up 5.0%, the Hang Seng Index 5.3%, the SSE Composite (China) 1.7% and the Japanese TOPIX up 6.2%.
The Australian dollar strengthened against most currencies over July, finishing at US$0.760 with a Trade Weighted Index of 63.3 on 31 July 2016. The Australian dollar appreciated against the US dollar (+2.1%), the Euro (+1.4%), the Yen (+2.2%) and the Pound Sterling (+2.9%). On a trade-weighted basis, the local currency rose 1.3% over the month.