In Australia, the ASX300 stock market accumulation index (including dividends) fell 6.5% during the quarter, giving up most of the strong gains in the March quarter. Greece, and later in the quarter China dominated the financial news. Over the 2015 financial year, the Australian stock market managed a 5.6% return, most of which came from dividends.
As we expected last quarter, the yield theme has become somewhat tired of late, with the large banks and other financial institutions bearing the brunt of the pain over fears of increased capital requirements. Despite this, A-REITs held up reasonably well during the period, perhaps reflecting their more defensive qualities compared to financials.
Overseas stock markets were fairly muted, with the MSCI World ex Australia Accumulation index returning -0.1% for the June quarter. Most of the damage was seen via European markets. With the Australian dollar being reasonably flat against the US dollar this quarter, there was no discernible difference between hedged and unhedged returns. Over the full year it was a different story, with offshore share markets returning 24.2% unhedged, as the Australian dollar fell against most major currencies, and 8.3% hedged.
Unlisted property continued to do well, with a number of major transactions pointing to continued valuation increases for the sector, combined with some signs of increased tenant demand in the important Sydney and Melbourne markets.
Bonds generally fell during the quarter as interest rates rose, despite ongoing corrections in many equity markets. This is a somewhat concerning development for those who hold significant bond investments as a hedge against falling equity markets. We believe with interest rates starting to rise in many nations over the next 2 years, most bonds will continue to offer minimal protection against equity market falls, while delivering substandard returns. Not a particularly attractive combination.