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3 Minute Economic Summary – June 2016

Article By Adam Hurwood | | Financial Planning
• The S&P/ASX 300 Accumulation Index finished the June Quarter down -2.45% after a roller-coaster period. After rising strongly in April, May and early June, the market fell sharply following the result of the UK referendum on EU membership. However, the market recovered some of this drop after the initial shock which helped drive demand for defensive stocks such as utilities. Since the end of the financial year the market has continued to rally back, reversing the losses from the Brexit announcement.

• For International Shares, stocks were also volatile and took a hit after the UK referendum results ending the month down -3.83%. The US markets bounced back quickly and generally finished the period up, whilst European and Japanese markets were hit the hardest. After the Brexit announcement the British Pound depreciated so quickly against the Japanese Yen that a trading halt was temporarily placed on the currency in Japan. Similarly, after the Brexit shock washed through, global markets have generally rallied back, in part from expectation that low interest rates/cheap money will continue to be made available to help further stimulate economies and offset some of the impacts of the Brexit.

• The Property sector continued its strong performance with both Australian and global listed property up 3.5% and 4.4% respectively for the month. Steady rental income has continued to see investors seek the reliability of property, particularly late in the month with the result of the UK Referendum. This flight to safer assets saw US property in particular do well, as investors took precautionary holdings in property in the lead up to the vote, which were further increased following the result. Sectors such as shopping malls, manufactured housing, retail strip developments and health care facilities that offer attractive yields benefited the most. Whilst in Australia, office and industrial performed very strongly for the same reasons.

• Similarly, for Fixed Interest, June was volatile but returns ended the period up 1.3% for Australian Fixed Interest and 2.0% for International. For International Fixed Interest, June was then dominated by the lead up and eventual vote for the UK to leave the EU. This saw many investors retreat to the safety of defensive assets given the uncertainty of what impact Brexit would have on share markets, which drove fixed interest returns higher. Some of the volatility was also due to speculation as to the timing of the next interest rate increase by the US Federal Reserve, with any increase reducing the demand for existing government bonds, particularly for record low rates in Europe and Japan.

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