The JB Were Private Wealth Index (PWI) shows investors should have made gains in October, adding 1.7 per cent over the month, ending the 12 months to October 31 up 7.62 per cent.
October saw global equity markets consolidate as we move into a key end of year period with the impending US "fiscal cliff" being a significant policy risk. The third quarter earnings season has been generally weak globally. In the US earnings were mixed with disappointing revenue and average earnings per share results, on the back of strong financial results relative to consensus.
In contrast to earnings, US macro data showed positive signs; the ISM manufacturing index was higher than expected, the labour market showed better than expected US non-farm payrolls and jobless claims, and consumer confidence is also at a relatively solid level. Furthermore, the US housing market continues to strengthen.
New Zealand equities once again outperformed most offshore markets, and the Australian market rallied on the back of easing financial conditions (the RBA cut the cash rate from 3.50 per cent to 3.25 per cent) and merger and acquisition activity.
Given tentative signs of data improvement, the Chinese H-Share market has rallied strongly over the last couple of months, undoing approximately half of its under-performance relative to the US market year to date. In particular, Chinese manufacturing surveys have shown signs of stabilisation and seem to be improving after negatively surprising the market earlier in the year.
Chinese Premier Wen released a relatively upbeat statement mid-month, changing his tone by announcing the economy had stabilised and the target of 7.5 per cent annual growth was well within reach. The once-in-a-decade Chinese leadership transition will be the focus for markets.
In Europe, headlines are spotlighting a potential Greek exit from the eurozone, as the parliament votes in early November on new austerity measures and budget in order to receive aid from the IMF and EU to avoid bankruptcy. Interestingly, Spain has not yet asked for a bailout, and the fact that the ECB stands ready to act seems to be keeping Spanish Bond yields at relatively low levels. Fixed income exposures in the PWI also made modest returns in what was a relatively uneventful month.
In terms of alternative investments our private equity exposure was the best performing asset class for the month, while commodities were the only exposure that realised a negative return in October, mainly driven by a weakening oil price.
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