There were some significant movements in markets overnight. JANA Investment Advisers have provided the following analysis of this activity.
As at 5 August 2011:
- S&P500 down 4.8% at close of trading overnight.
- AUD vs USD currently at $1.05.
- US 10 Year Treasuries have fallen to a record low at 2.4%, 10 Year Aust Bonds are now at 4.7%.
- As at 3:30pm, the ASX200 just over 3.9% lower for the day.
Stocks around the world fell sharply overnight on intensifying investor fears about a slowdown in global economic growth and worries about Europe’s ongoing debt crisis, which is now centred on Italy and Spain. Markets are concerned that the United States economy may be heading for a double-dip recession. Even after a second major rescue package for Greece, and the agreement to raise the debt ceiling in the United States, investors are concerned that world leaders have not done enough to address fragile underlying economic growth, while Europe’s debt problems have moved on to the much bigger economies of Italy and Spain. Concern the global economy may relapse into a recession has driven investors out of stocks and into the relative safety of Treasuries, the Swiss Franc and the Yen, and is spurring speculation the Federal Reserve will start another stimulus program.
U.S. data in recent days has been weak, showing manufacturing grew at the weakest pace in two years, spending unexpectedly fell, and service industries grew at the slowest pace since February 2010.
The sell off is also an indication of the confidence (or lack thereof) in the leadership from both the US and Europe and their (in)ability to solve the debt crises.
As always, we emphasise the importance of diversification. While equities have sold off somewhat, the Fund maintains a healthy exposure to property, infrastructure and other asset classes. In addition, the unhedged exposure to a portion of international equities has cushioned returns somewhat as the Australian dollar declined by a similar amount to share market falls.
We should continue to expect volatility in markets in the near future, as much uncertainty prevails in the worldwide economy. However, we remind members of the longer-term approach HOSTPLUS takes towards management of superannuation, and that the portfolio continues to be managed prudently against this context. We remain cognisant of short term risks, but also alert to longer term opportunities.
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