Market Update – September 2010

Australian and Global equity market performance was strong in September with global equity markets (MSCI World index excluding Australia up 9.4% in US Dollar terms). This was driven directly by the US Markets (the S&P500 index gained 8.8% in US Dollar terms) the strongest September since 1982. The Australian equity market (ASX 300 Accumulation Index) rallied strongly in September ending up 4.8%.

Data released in September continued to suggest an improving outlook for global growth, reflected through stronger commodity prices. Against this the announcement of the prospect of more stimulus in the US, which made US interest rates lower, the US Dollar lower, and on the flip side the Australian Dollar 8.6% higher over the month, hitting parity on October 15th!

In the US, manufacturing is moderating with confidence levels being the key sticking point. Boards tend to move on confidence levels. While business confidence is not terribly high there is a reported $800 billion of cash on US corporate balance sheets earning virtually nothing (based on current interest rates in the US). It is expected that this cash should go back into the economy through investment and new company projects etc.

The outlook for Chinese growth also continued to stabilise with a number of positive data releases (Industrial production up 13.9% in August, up from +13.4% in July). Focus is still on emerging markets where growth is estimated at 6% whereas the developed (OECD) countries are looking at around 1% growth in Gross Domestic Product (GDP) for the year.

This means from an equity focus investment here in Australia and of course China. All reports suggest that we should not expect growth rates above 10% over the next few years in China, however the story of continued growth from their ever expanding appetite for urbanisation could see 8-9% growth returns. There remain many provinces outside the major cities such as Beijing and Shanghai that need the infrastructure to hold huge individual populations. This of course is a major positive for Australia and the materials we provide.

The Reserve Bank of Australia (RBA) left interest rates on hold for the fifth consecutive month in October despite and improving global outlook, as well as positive domestic consumer related data including consumer confidence, steady growth in retail sales and continued low unemployment (5.1% with 49,500 new jobs created, following 30,900 in September).

Adapted from the various market and economic commentary that flow past our inbox each month, including Macquarie Equities, JB Were and Citigroup.