January 2010 investment commentary
Investment markets remain volatile with investors cautious about the strength of the global recovery. Investors became more risk averse in January, selling equity investments and buying fixed interest securities.
Equity markets
The Australian equity market fell over 6% with all sectors posting losses. Resource stocks were particularly weak after the Federal Government announced that it might change the way it taxes mining companies as part of the Henry Tax Review. Resource stocks were also sold down heavily as a result of concerns that the Chinese government would look to slow economic growth. International equity markets also fell during January as investors became concerned about sovereign risk relating to the high level of debt in Greece and other parts of Europe. Equity markets also reacted negatively to proposed changes to the US banking system by the Obama government.
Fixed interest markets
Fixed interest markets performed strongly during the month following a 'flight to quality' as investors became risk averse on concerns about debt levels in Greece and other small European nations. Investors seeking relative safety in fixed interest markets pushed the prices of fixed interest securities higher. Domestic fixed interest markets also benefited from the view that the Reserve Bank of Australia (RBA) would not raise interest rates at its February meeting (the RBA subsequently left rates on hold at its February meeting).