During the first quarter of 2009 the Australian government announced a large spending package worth $42 billion over four years. Around $12 billion will be spent on cash bonuses to individual low to middle-income earners in order to provide an immediate boost to economic growth, with the remainder being spent on revenue-generating infrastructure projects over the coming years.

Globally, governments were doing their best to stabilise the financial sector with various initiatives aimed at supporting local banks, increasing consumer confidence and boosting economic activity. In particular, the US announced its US$2 trillion Financial Stability Plan to improve conditions in financial markets.

Elsewhere, the release of Chinese GDP data was bad news for the Australian economy. Economic growth in China fell 2.2% to 6.8% for the 12 months to December 2008. This news means that demand from China is likely to fall, bad news for the Australian economy whose exports, especially raw material, are highly reliant on the Chinese import market.

The market commentary below is provided to give an indication of the various factors affecting the investment performance of individual asset classes. It is based only on the gross performance of the relevant market index and no allowance is made for taxes or fees as they apply in your superannuation investment. It is provided merely as an indication of relative performance between asset classes and should not be used as a measure for judging the performance of your investment strategy.

Australian Equities

From the beginning of January to the first week of March, the Australian stock market traded poorly with a performance of negative 15.5%. However, the market hit a potential ‘bottom’ on 6 March 2009, sparking a rally to the end of the month of nearly 14%. By the end of the quarter, this late rally almost made up for the prior two months with the benchmark S&P/ASX 200 index finishing down just short of 2% for the quarter. The meeting of the G20 may have gone some way to spark this recovery as investors saw decisive action from world governments to improve economic conditions as a big positive for financial markets. Another support for the rally was a growing belief amongst certain investors that certain stocks and sectors had been oversold. It remains to be seen whether the bargain hunters are correct in their belief that the bottom of the market has been reached but, in the short term at least, it appears as though investors are slowly regaining confidence in equity investments and returning to the market.

International Equities

A very similar story can be told for international stock markets. The late rally seen in Australia was repeated in world stock markets although more modestly. The main difference was that the first two months of the quarter were much worse than the domestic market. The benchmark for world stock markets, the MSCI World Ex Australia index, lost 15.9% (on a hedged basis) through January and February so the late rally had a lot more work to do to recapture those falls. The rally only recouped 6% and by the end of the quarter the benchmark was still down nearly 11% showing that there is still a long way to go before this market regains its equilibrium.

Listed Property

Listed Property investments continued their recent poor returns through the first quarter of 2009 and did not enjoy the same recovery as seen in the wider stock market. The benchmark S&P/ASX 200 A-REIT index finished the quarter down more than 24% as the process of de-leveraging continued.

Cash and Fixed Income

The Reserve Bank of Australia cut interest rates by an expected 1% to 3.25% in February with a similar trend emerging around the world as central banks tried to encourage economic activity through monetary policy.

Cash and Fixed Income investments over the quarter continued to provide a ‘safe haven’ for investors looking outside of equity markets. Benchmark returns for the quarter ranged from 0.2% to 3.1% depending on the nature of the investment, with inflation linked bonds coming in at the top of this range due to the interest rate cuts.

The credit sector remained volatile during the quarter with the benchmark, Barclays Capital Global Credit index, returning a negative 0.6% during this period. A lot of doubt still exists around credit investments following the seemingly impossible collapse of high-profile investment banks at the end of last year.