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PSSap fund performance for December 2008

Welcome to the monthly update on your fund's investment performance.

ARIA’s primary responsibility is the management and investment of the PSSap funds in the equitable and best interests of all members. ARIA approaches this task by setting an investment objective to maximise the real returns earned on investments subject to a tolerable level of short-term volatility.

Table 1:  PSSap option earning rates for periods ending December 2008  

* All Earning Rates are after fees and tax

Table 2: Historical fund earning rates (%)

* All earning rates are after fees and tax

Commentary

Following a contraction in real GDP growth in the September quarter across most developed economies (US, UK, Japan, Europe and NZ), lead indicators suggest that this weakness continued in December. Australia’s real GDP in this period grew by 0.1%, though non-farm activity declined.

In contrast, the emerging Chinese economy continues to grow, albeit at a reduced pace. Industrial production growth slowed to 5.4% in the year ending November from 8.2% a month earlier. 

Policy stimulus remains aggressive and global: Japan has announced a financial sector support package equivalent to 4.7% of GDP in December; authorities in the US have provided short-term loans worth around USD 17 billion to ensure the ongoing viability of the large auto companies;  and monetary policy continues to be eased across a wide number of developed and emerging countries.  Short-term interest rates are now at or below 0.25% in both the US (a range of 0%-0.25%) and Japan (currently 0.1%). 

Financial markets took a breather in December. Global equities rose by 1% in December, in hedged terms, following declines of 6%, 17% and 11% in each of the preceding months, respectively.  Hedged global equities lost 39% of their value in calendar year 2008. By comparison, with the Australian dollar depreciating relative to most other currencies for the bulk of that year, unhedged global equities lost 25% of their value in calendar year 2008. In December, however, the Australian dollar rebounded somewhat, so that in unhedged terms, global equities actually fell by 3.7% in the month. 

Australian equities lost 39% of their value over calendar year 2008. In December, the ASX300 fell 0.1%, with Australian Resource stocks outperforming their Industrial peers by around 3%.  Sector dispersion remains material. In December, the more cyclical sectors rebounded (Information Technology up 13%; Consumer Discretionary up 8%; and Industrials up 7%). The worst performing sectors were Property Trusts (down 10% reflecting ongoing concerns surrounding property valuations) and Telecoms (down 5% due to Telstra’s surprise exclusion from the national broadband network tender process).

Material falls in short-term interest rates and declining inflation expectations underpinned a second consecutive month of positive gains in global Government bond markets in December (2.3% in the month). Global government bonds have returned 13.4% over the calendar year to December 2008.

December also saw the first signs of improvement in credit markets, with spreads narrowing on a majority of securities. 

December was a mixed month for commodity prices: grains (+10%) and precious metals (+8%) were strong.  By contrast, energy (mainly oil) was down 16%, industrial metals (including copper, nickel and aluminium) was 10% and livestock and soft commodities fell by 2%-3%. The S&P Goldman Sachs Commodity Index fell by 46% over the full 2008 calendar year. 

The Australian Dollar recovered some lost ground in December, rising very strongly against the Pound (up 13%), in particular. The Australian Dollar also rose against the US Dollar (7%) and the Yen (2%), but fell back against the Euro (-2.5%). Over the 2008 calendar year, the Australian dollar fell 35% against the Yen, 20% against the US Dollar and 16% against the Euro, but appreciated 9% against the very weak UK Pound.

Alison Tarditi
Chief Investment Officer
12 January 2009