How the different asset classes have fared:
(As at 31 August 2021)
International share markets (unhedged) rose 3.09% in August. The performance of hedged and unhedged shares is now fairly similar over longer time periods. However, with a weaker A$, unhedged shares are now outperforming hedged over the past 6 and 12 months. The US share market continues to grind higher and higher. European shares also continue to deliver positive returns. In Asia there are rising concerns about China embarking on a difficult period of structural reform. This is reflected in poorer relative performance of Chinese stocks.
The vaccine rollout is progressing well in both the US and Europe, despite concerns about the spread of the “Delta” variant of Covid-19. Market breadth which measures participation in the market is becoming narrower, with fewer and fewer large capitalisation stocks responsible for driving the market higher.
The S&P/ASX All Ordinaries Index rose by 2.6% in August, largely following international markets. There are some risks that the prolonged lockdowns may impact the real economy and market sentiment negatively. However, the Australian vaccine rollout is finally starting to gain momentum, with credible forecasts of 70-80% vaccination rates likely to be achieved by late October. A risk factor for Australian shares is the continued fall in iron ore prices. The falling value of the A$ will however partially offset these falls.
Domestic and International Fixed Income
Australian government bond yields fell in August, leading to very modest capital gains in Australian fixed interest markets. The RBA has quite clearly indicated that Australian cash rates are likely to be held at current levels for at least the next few years. Internationally long-term interest rates rose modestly, leading to small capital losses on international bonds.
The Australian dollar fell modestly against the US dollar in August. If commodity prices continue to fall as we expect then we would anticipate a lower A$ in the future. We continue to prefer currency unhedged to currency hedged investments.