Emerging markets remained strong over January 2018, increasing 4.6% over the month to be up 32.2% for the 12-month period while global equities also continued their upwards climb. Confidence in China, following strong economic activity and increased emphasis placed on achieving sustainable growth continues to support emerging markets performance. Brazil also renewed confidence through the shrinking of its current account deficit to a decade low, coupled with decreased interest rates in response to low inflation levels. The Australian equity market faltered, as the S&P/ASX 300 Index fell 0.4%, ending a streak of seven consecutive months of positive growth.
The Australian equity market underperformed its hedged international developed counterpart index over the month, as the S&P/ASX 300 Index fell 0.4%, ending a streak of seven consecutive positive months. The S&P/ASX mid 50 Index was the strongest relative performer, falling 0.1%, while the S&P/ASX Small Ordinaries was the weakest, falling by 0.5% for the month. The best performing sectors were Healthcare (+3.1%) and IT (+2.5%). The weakest performing sectors were Utilities (-4.4%) and Real Estate (-3.2%). The largest positive contributors to the return of the index were CSL, BHP and South32, with absolute returns of 3.7%, 2.4% and 9.6% respectively. In contrast, the most significant detractors from performance were CBA, Amcor and Tabcorp with absolute returns of -1.8%, -5.3% and -7.4% respectively.
The broad MSCI World ex Australia (NR) Index was up 3.8% in hedged terms and 1.8% in unhedged terms over the month, as the AUD appreciated against the USD. The strongest performing sectors were Consumer Discretionary (+4.3%) and IT (+3.8%), while Utilities (-4.4%) and Real Estate (-2.9%) were the worst performers. In AUD terms, the Global Small Cap sector was flat (0.0%) while Emerging Markets rose by 4.6%. Over January, the NASDAQ increased 7.4%, the S&P 500 Composite Index rose by 5.7% and the Dow Jones Industrial Average increased by 5.9%, all in USD terms. In local currency terms, major European equity markets experienced mixed returns as the FTSE 100 (United Kingdom (UK)) decreased 2.0% while the DAX 30 (Germany) increased by 2.1% and the CAC 40 (France) increased by 3.2%. In Asia, the Japanese TOPIX (1.1%), Hang Seng (9.9%), SSE Composite (5.3%) and Indian S&P BSE 500 (2.3%) all rose over January.
The AUD appreciated strongly against the US but depreciated against the remaining major currencies over January, ultimately finishing with an increased Trade Weighted Index of 65.6 on 31 January 2018. The AUD appreciated against the USD (+3.5%) but depreciated against the Pound Sterling (-1.7%), the Euro (-0.5%) and the Yen (-0.1%). On a trade-weighted basis, the local currency increased 1.1% over the month.