After three consecutive months of gains in the Australian share market, the shock 'Brexit' vote to leave the European Union in late June caused the All Ordinaries index to decline by 2.5% for the month.
The All Ordinaries index closed June at 5,310.4 points, marking a 3.8% decline in value over the financial year (after recording only a modest gain of less than 1% in the financial year prior). As a matter of fact, the All Ordinaries index is now back to values last seen in October 2013!
Global investment markets were mixed in June as investors are coming to terms with the full implications of Brexit. The US Dow Jones Index gained 0.8%, the London FTSE gained 4.4%, the Japan Nikkei 225 index fell by 9.6% and the Hong Kong Hang Seng Index fell by 0.1% in the month.
The chart below compares key share market performance over the 2016 financial year.
As noted above, the Australian share market has marginally underperformed London and US markets over the financial year. What is also evident from the above chart is the volatility in returns over the financial year.
Looking ahead, with the Federal Election this weekend, a US election later in the year and negotiations between the UK and European Union to occur – volatility will be the new normal.
However, history would suggest that given the Australian share market has performed poorly over the last two financial years, a period of positive returns will occur at some stage. The challenge for investors is to 'hold your nerve' and make sure that you are invested at the time the recovery happens.
The Australian dollar rallied in June (up 2.6% for the month) following the Brexit vote. The Reserve Bank of Australia kept the official RBA Cash Rate on hold at 1.75% per annum. However, with more macroeconomic uncertainty, don't be surprised if the RBA board cuts the Cash Rate again in the foreseeable future.
For more information, please contact Ryan Love or Michael Clapham on 1300 856 338.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.