Two bad months in a row for equities

The international and domestic sharemarkets were already suffering significant losses prior to the negative impact of the terrorist attacks in the US, according to results released byAusbil Dexiafor the month of August.

International equity continued on with its poor showing and lost 8.3 per cent, while Australian equities followed them into red territory with a loss of more than one per cent.

Internationally, the US and European markets appeared to suffer the worst hits in August. The Dow lost 5.4 per cent, the Nasdaq almost 11 per cent, while in Europe the UK was the least worst with a drop of 3.3 per cent. France and Germany fared poorly with drops of close to 8 per cent and 12 per cent respectively.

Asia was mixed, with Japan and Hong Kong losing around 10 per cent, while Malaysia and Thailand posted stronger returns in the black of more than 4 and 12 per cent respectively.

In other asset classes, as is often the case when equities have a bad month, local and international bonds were relatively strong performers. Significantly, none of the asset classes managed to return above the 4 per cent mark.

International bonds polled returns of 1 per cent, while indexed bonds top scored with 3.7 per cent, followed by Australian bonds which returned 2.7 per cent.

Property managed to also benefit from defensive strategies of investors to post positive returns. Direct property achieved a 0.8 per cent return, while listed property trusts were strong at 3.4 per cent in August. Cash, meanwhile, just scraped into positive territory with 0.4 per cent for the month.

Ausbil Dexia director Michael Wilson says property should continue to perform strongly throughout the rest of the financial year.

“Direct property will be quite good, perhaps with a yearly return around 10 [per cent], because of the income flows it brings in…listed property should be highish as well,” he says.

But despite the poor showing by equity markets in the first two months of the financial year, Wilson does anticipate a recovery in equity markets before financial year’s end.

“The profit outlook for the current financial year remains positive with profits forecast to grow in excess of 10 per cent following interest rate cuts and fiscal stimulus. Ausbil Dexia expects equity markets to appreciate as the year rolls out,” he says.

But asked about the impact of the recent terrorist attacks on the US, Wilson says that while they obviously have had an immediate impact on markets throughout the world, the events “should not damage the eventuality” of the forecasts he has made about asset class performance throughout the year.

“At most, these events might push [the recovery of equities] out by one to three months,” he says.