Market Review – December 2021
How the different asset classes have fared:
(As at 31 December 2021)
Unhedged and hedged international equities exposures finished positive on the month of December, changing 3.98% and 1.73% respectively. Even with high inflation numbers and surging Omicron case numbers, international equities, namely the United States rose to finish the year. A gain in the AUD/USD caused by a rebound in the iron ore price, which is highly correlated to the AUD, meant slight divergence in the hedged and unhedged returns.
The S&P/ASX All Ordinaries Index rose by 2.67% in December to finish the year strong. Fears regarding the Omicron variant subsided from the previous month as markets didn’t believe the economic impacts from the outbreak would cause economic damage like the previous variants. This had a lot to do with the governments “learn to live with it” reaction to the virus.
Domestic and International Fixed Income
Australian long and short-term bond yields remained mostly unchanged on the month as the index rose 0.09%. International bonds fell 0.44% on the month as the US 10-year bond rose slightly on the month, differing from the Australian market. The Federal Reserve is likely initiating rate hikes in March this year which slightly pushed up these yields.
The Australian Dollar rose 1.8% on the quarter as a bounce in the iron ore price provided support. The Aussie Dollar is still in a gradual downtrend over the one year as it fell ~6% across 2021. This was primarily driven by a significant fall in the iron ore price from the fall in demand in the commodity primarily from China. The correlation between this commodity and the AUD is significant as it is Australia’s most exported resource.
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