In this month’s Cross Asset Review produced by Foresight Analytics, we look at the outperformance of domestic assets despite loses in global equity markets and rising uncertainty around global economic outlook. Gold, Bond assets and Bond proxies (AREIT/GREIT) also outperformed as investors sought exposure to safety assets. A weaker AUD relative to the major trading partners delivered strong and positive translation effect for unhedged investors. Currency volatility for AUD/JPY continues to be higher than its long-term average. In May alone AUD lost 4.3% against Yen, to be down 9% over the past 12 months.

 

1. Risk off sentiment weighs on global assets, Australian shares buck offshore trend

Exhibit 1: Risk-off sentiment lead to declines in growth asset classes

 

2. Australian bonds delivered one of the best monthly returns, beating global bonds

Exhibit 2: The shorter term retracements need to be placed in the context of very strong markets since 2009

 

3. AUD continues to weaken on the back of soft domestic economic and inflation data and RBA cut

Exhibit 3: AUD continues to be weaker against its major trading partners

 

4. A broad weakness in AUD over recent years deliver positive currency effects for unhedged investors.

Exhibit 4: Unhedged Defensive and Growth assets benefited substantially from weaker AUD

 

5. Analysis of correlations and volatilities continue to demonstrate the benefits of multi-asset diversification for investors.

Exhibit 5: Small and mid cap equities prove to be riskiest but correlation matrix shows active investors should be able to create a strong diversified portfolio

 

Check out complete report here.