Key Themes for the Quarter
Strong Quarter for Equities, Reversing Late 2018 Decline
Australia Posts Best Quarter in a Decade; NZ Benchmark at Record Highs
Developed Markets Also Up Around 11%, Emerging About 9% Size and Profitability Premium Positive in Developed Markets; Value Negative
Stellar Quarter for REITs, Rising 13% in Developed Markets
Global Bonds bolstered by positive term and credit premiums

Global Market Summary

The unpredictable nature of global markets was highlighted by a stunning bounce back in shares around the world in the first quarter, reversing a poor end to 2018.

Bonds also rallied strongly as markets revised down expectations for global economic growth and recalibrated their view of the future path of monetary policy. The US Federal Reserve in March projected no further official rate increases for 2019.

Aside from shifting expectations for interest rates, media and market commentary also focused on hopes of a breakthrough in trade talks between the US and China as well as the United Kingdom’s attempts to seal its exit from the European Union.

Both the Australian and US equity markets registered their best quarterly performances since coming out of the financial crisis. According to Bloomberg data, it was the Australian market’s best first quarter in three decades of record keeping. The New Zealand market rose nearly 12% over the quarter, reaching record highs in late March.

Australia’s gains were led by materials stocks. Fortescue Metals was a standout, powered by iron ore prices hitting five–year highs. Strong gains were also posted in the sectors of IT, communication services, energy and real estate.

Market Movements, Quarter End

Financials lagged the overall market, though, amid continued fallout from the Hayne Royal Commission.

In developed and emerging markets, the sector pattern was similar. IT, REITs and energy were among the top performers. Healthcare and financials lagged.

In terms of the individual premiums, small cap stocks outperformed large everywhere but in emerging markets in the quarter. The profitability premium was also positive, while low relative price stocks underperformed growth across the board.

In the bond market, both the term and credit premiums were positive. Yield curves shifted downward in most markets, while corporate  bonds outperformed government bonds.

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*Performance is shown in AUD. Past performance is not indicative of future results. Australian Cash—Bloomberg AusBondBank Bill Index, Australian Bonds—Bloomberg AusBondComposite 0+ YrIndex, Global Bonds—Bloomberg Barclays Global Aggregate Bond Index (hedged to AUD), Australian Stocks—S&P/ASX 300 Index (Total Return), Developed Stocks—MSCI World ex Australia Index (net div., AUD), Emerging Stocks—MSCI Emerging Markets Index (net div., AUD), REIT Stocks—S&P Developed REIT Index (net div., AUD), Hedging Premium—MSCI World ex Australia Index (net div., hedged to AUD) minus MSCI World ex Australia Index (net div., AUD). Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.

New Headlines, Q1

The financial media’s focus globally in the first quarter was on changing expectations for global growth and interest rates, developments in US–China trade talks and the UK government’s ongoing attempts to secure a Brexit deal.

In Australia, the wash–up from the Hayne Royal Commission’s final report in February occupied much attention, as did speculation about the timing of the federal election and the quandary of strong jobs growth alongside stagnant incomes.

The following headlines are not intended to explain the markets’ performance in the quarter, but to provide some perspective about what people were talking:

January

• British pound rebounds as Brexit deal rejected in parliament—Financial Times
• IMF cuts global growth forecast for second time in three months—Reuters
• Euro area back on the brink of recession—The Economist

February

• Hayne Royal Commission urges shake–up of Australian financial sector—AFR
• Federal Reserve flags end to balance sheet run–off, patience on rates—Reuters
• US trade chief sees long–term China challenges—Reuters

March

• Trump’s second summit with North Korea’s Kim collapses—Bloomberg
• Boeing in crisis as carriers ground 737 Max—New York Times
• Federal Reserve signals no further rate hikes in 2019—Reuters

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Source: Dimensional Fund Advisers