Australian shares have biggest monthly gain in four years

The Australian share market rose 5.1% for September hitting a series of record highs over the month. By the end of the month the market had rallied almost 90% since its low of 13 March 2003. There was a reversal of fortunes early in October as the market fell spooked by fears of rising inflation in the US and further interest rate hikes.

International share markets were up 3.2% in local currency terms in September after a flat August. This positive result was despite high oil prices. The downside for the month was the rising value of the $A that rose 1.7% against its United States counterpart. The end result was a return of 0.8% as measured by the MSCI World ex Australia index (unhedged). The fully hedged return was 3.4%.

Global and Australian bond markets both delivered negative returns in September after an unexpected rally in August. Global markets fell –0.3% (Lehman Global Aggregate index) impacted by concerns about the outlook for growth and inflation. In the US, official interest rates were increased during September to 3.75% and globally there was a rise in yields across maturities. In Australia, this rise in yields pushed the market down –0.6% (UBSA Composite Bond Index).

The MSCI Emerging Markets Index (dividends reinvested) was up 7.5% in $A terms in September (with dividends reinvested). The one year index return was a spectacular 39.0% highlighting that when this asset class runs hot, it really runs hot.