Breaking down EOFY asset class returns
With rising interest rates, inflation and recession fears hitting investment markets, AMP Capital’s chief economist, Shane Oliver, has broken down how asset classes have performed in the past financial year.
Oliver said the last six months had been tougher than the previous six, because of factors including a surge in shares during the pandemic leaving valuations vulnerable to a pullback, inflation worries made worse by the Ukraine war and aggressive interest rate rises.
“A surge in bond yields (with Australian 10-year bond yields rising from 1.55% to 3.66%) on the back of surging inflation and interest rates added to downwards pressure on share markets by pushing price to earnings multiples lower,” he said.
These factors created poor investment returns over the last financial year for most listed assets as can be seen in the below chart.
Bonds had seen their worst 12 month return in decades, according to Oliver, as the surge in bond yields resulted in capital losses for investors.
“Australian bonds lost 10.5% over the last 12 months which is worse than their losses in the “bond crash” of 1994 and looks to be their worst 12 month loss since the 1973 or the 1930s.”
Meanwhile, global shares lost 11.1% in local currency terms. A fall in the growth-sensitive Australian dollar saw this reduced to a loss of 6.5% with Oliver acknowledging this followed gains of 37% and 28% respectively in the previous financial years.
Oliver said the most speculative assets like tech stocks (with Nasdaq losing 24%) and crypto currencies (with Bitcoin down 46%) were hit the hardest.
“But commodities returned 22.5% in US dollars due to strong demand, supply shortages and the war,” he said.
“Australian shares were also dragged down - particularly as the RBA got more aggressive in raising rates in June – with a loss in the last financial year of 6.5%.”
Oliver said unlisted commercial property and infrastructure provided solid returns while acknowledging these often lagged returns from listed assets.
“Australian residential property prices rose 11% but price gains progressively slowed and have now started to fall as poor affordability and rising mortgage rates hit the property market. Combined, this drove an estimated average loss on balanced growth superannuation funds of -3 to -5% after fees and taxes.”
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