BT Financial
The Australian share market just managed to post a fourth consecutive quarter of growth. The ASX 200 rose by 0.2% over the quarter after declining sharply in January. February experienced modest growth but this was followed by robust performance in March with a monthly gain of 5.1%.
The economy continued to perform more strongly than expected over the quarter. Despite this, consumer confidence has been hit slightly by concern over future interest rate increases and as the impact of government stimulus measures faded. Wider concerns over sovereign debt issues and a tighter monetary stance in China put some downward pressure on the share market.
International shares
US markets gained over the quarter with the S&P500 Index posting a return of 5.9%. European markets also ended the quarter with a gain but they rose by a smaller amount. The Greek debt issue continued to weigh on general investor sentiment in the European area. The UK was one of the better performers in Europe with a return of 4.9% for the FTSE 100 Index. Japan posted a strong relative quarterly performance with the Nikkei gaining 5.2% over the quarter. In contrast, the Shanghai market fell by 5% as banks were instructed by the government to tighten lending which reduced the amount of credit available for share purchases.
Bonds
Domestic bonds saw a sharp decline in shorter-term yields in February following the RBA’s decision to hold interest rates steady. Yields then recovered slightly for the rest of the quarter. Internationally, the difficulties Greece has in repaying its sovereign debts remained the major focus. German Bunds saw a sharp increase in comparison to Greek bonds as investors sought higher quality debt. In the US, yields on longer-term bonds rose throughout the quarter but trading conditions were characterised by bouts of volatility related to the passing of Obama’s healthcare reform package.
Australian listed property
The listed property sector under-performed the broader market in the March quarter. Earnings results from most of the large property companies were a little disappointing. The outlook is one of cautious optimism as balance sheets are repaired but increasing office vacancy rates and soft operating earnings growth from shopping centres continues to weigh negatively on sentiment.
Cash
The Reserve Bank of Australia held off raising rates in February, raised rates by 0.25% in March, and did the same in April. The cash rate now stands at 4.25% and the RBA now has to balance the risk of higher inflation and surging house prices with the danger of nipping a nascent recovery in the bud.
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