[Calxy]

Generally, better-than-expected economic data in September helped support returns in most asset classes. Fed Chairman Bernanke’s statement that the US recession was ‘very likely over’ also spurred markets. However, investors remained somewhat concerned about the eventual withdrawal of global monetary and fiscal stimulus measures, as well as signs that final demand had yet to pick up.

Equities: Global equity markets continued to gain ground in September on the back of improving economic data. The MSCI-AC world index climbed 4.6% as all major markets (with the exception of Japan) ended the month higher. Emerging markets (+9.1%) and Asia (+10.3%) outperformed the developed markets. Among the developed markets, Europe ex UK (+5.5%) was the top performer, while Japan was the only major market to decline (-1.7%).

Government bonds: Government bonds globally ended higher (+2.4%). Although bond yields were reasonably unchanged in September, currency moves dictated most non-dollar bond prices. Thus, Australian bonds were the best performers returning +5.7%, while UK gilts were the worst performers posting a negative returns of 1.8%.

Corporate bonds: Credit continued to produce good returns in the past month. Corporate bond issuance was robust during the month, and was met with strong investor demand. US high-yield bonds and European (ex UK) bonds were the best fixed income performers in September, returning 4.6% each, while US investment-grade credit rose 1.3%.

Inflation-linked bonds: ‘Linkers’ outperformed their nominal government counterparts in September, as break-even inflation rates edged higher and real yields fell. UK bonds underperformed, largely due to currency underperformance, but also due to real yields elsewhere falling further than UK yields.

Commodities: Average commodity prices fell 1.1% last month, after performing strongly in recent months. Energy prices led the declines on demand and inventory concerns. Industrial metals also fell on similar worries. Precious metals outperformed as the US dollar weakened.

Listed real estate: Despite mixed regional performances, the global REIT index posted a robust return (7.0%) in September, outperforming other asset classes. The US and Europe (excluding UK) property markets outperformed, while UK and Japanese REITs underperformed.

Currencies: The trade weighted US dollar index (-1.9%) fell for the third consecutive month. The dollar weakened against all major currencies except the
sterling, likely due to relatively more uncertain economic prospects in the UK. The Australian dollar outperformed, with better-than-expected economic performance heightening expectations of interest rate increases.