Market update - June 2021

Most major sharemarkets posted positive returns in June, as most developed economies saw vaccination campaigns accelerate.

The vaccination rollout across emerging economies continued to lag however, with COVID-19 infection rates growing rapidly in India. The fast-spreading Delta variant of the coronavirus is of significant concern, forcing several countries into further lockdowns.

In the US, the Federal Reserve (the Fed) acknowledged inflation pressures are stronger and more persistent than expected, and indicated a possible interest rate hike in 2023. Economic data was strong in the US, posting an annualised growth rate (GDP) of 6.4% in the March quarter while the Consumer Price Index (CPI) increased by 5% year on year. In emerging economies, continued investor optimism led to positive sharemarket returns.

The MSCI World Index ex-Australia (hedged into AUD) rose 2.4% over June. In developed markets, Switzerland (+4.9%), Denmark (+4.8%) and New Zealand (+3.8%) outperformed the broader market, while Portugal (-4.4%), Spain (-2.5%) and Hong Kong (-1.8%) underperformed. The MSCI Emerging Markets Index (unhedged) rose by 3.3%, underperforming unhedged developed markets (+4.7%). Colombia (+6.4%) and the Philippines (+4.5%) were the strongest markets, while Peru (-11.9%) was the weakest.

The Australian sharemarket rose over the month despite growing concerns around the more contagious Delta variant of the virus. Sharemarket returns continued to be supported by the strength in commodity prices, as supply pressures and the return of industrial demand saw most markets tighten. However, some commodity markets declined, particularly copper and gold. The Reserve Bank of Australia (RBA) left interest rates unchanged at its June meeting.

The Australian sharemarket (S&P/ASX 300 Index) rose 2.3% in June, with generally positive performance across sectors. Information Technology (IT) was the strongest performing sector (+12.4%), while the Financials sector (-0.2%) was the key detractor. Mid Caps (+3.7%) and Small Caps (+3.1%) outperformed Large Caps (+1.9%).

The Australian Dollar (AUD) fell against most major currencies over the month, depreciating against the US dollar (-3.0%), Japanese yen (-1.6%) and British pound (-0.2%), was steady relative to the Euro and appreciated against the NZD (+1.0%). The US 10-year yield moved from 1.58% to 1.45% and the Australian 10-year yield fell from 1.66% to 1.53%.

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