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Aon Retirement and Investment Blog

Weekly Update-14 July 2015 (APAC)


  • Global benefits governance continues to be an important issue for multinationals since Aon Hewitt conducted the first study with American Benefits Council in 2012. We had almost 200 multinationals participate then. Please consider participating in the 2015 version, which is designed to understand the evolving trends in global governance over the past 3 years. It also includes an in-depth analysis of operating models companies use to manage global benefit programs. You will receive a copy of the global report as well as a customized benchmark report comparing your responses to global results.
  • The funded status for the average U.S. pension plan is nearly identical to what it was five years ago, hovering near 85% at the beginning of both 2010 and 2015, though the market environment has changed significantly. How should the risk management strategies developed by plan sponsors several years ago adjust to reflect today’s circumstances? In our recent white paper, Back to the Future: How the Future of Pension Risk Management Will Differ from the Past we introduce the actions that plan sponsors should consider when evaluating and improving their strategies in light of these changes.
  • Aon Hewitt’s Global Asset Allocation Team wrote the brief white paper “China’s market troubles.” It discusses how China’s onshore equity market has taken a tumble, which is hardly surprising considering its earlier meteoric rise.  The surprising element has been elsewhere – the way that the authorities have tried to prevent the market correcting.  There are wider global investment implications from what is happening to this market which are also discussed.
  • Global equity markets had a mixed week. The start of the week was characterized by pessimism as a significant majority of Greek voters rejected the bail-out deal proposed by its creditors and volatility in the Chinese equity market raised concerns about an economic slowdown. However, later in the week investor sentiment improved as negotiations between Greece and its creditors appeared to make substantial progress, reversing the sell-off earlier in the week. This pattern saw the MSCI World and S&P 500 Indexes both return 0.0% for the week. However, on a year-to-date basis, the MSCI World index has outperformed the S&P 500 index (+3.5% vs. +2.0%).
  • US small cap stocks outperformed large cap stocks as the Russell 2000 returned 0.3% over the week. Year-to-date small cap stocks have outperformed large cap stocks (+4.6% vs. +2.0%). Growth stocks slightly outperformed value stocks again last week (0.1% vs. -0.2%) as measured by the MSCI USA indices. Growth stocks have outperformed value stocks year-to-date by 5.3% vs. -0.6%.
  • The 10 year US Treasury yield finished the week 1 bp higher at 2.40% and 30 year US yields remained at 3.19%.
  • 20 year TIPS yields ended the week 3 bps higher at 0.83%. 20 year breakevens were 4 bps lower at 1.87%.
  • Corporate credit spreads widened over the week. The Barclays Capital Long Credit Index spread over Treasury yields moved up 4 bps to 203 bps, but the Merrill Lynch US Corporate Index spread moved 10 bps lower, finishing at 136 bps by the end of the week. The US high yield bond spread over Treasuries was 6 bps higher at 497 bps and the spread of USD denominated EM debt over US finished the week 2 bps lower at 343 bps.
  • The S&P GSCI Commodity index fell by 4.2% in USD terms over the week driven by worries over slowing growth in China. The energy sector fell by 5.7%, as the price of Brent crude oil fell 3.3% to $58/BBL. Industrial metals were 2.7% lower over the week, as copper prices fell 2.9% to $5,578/MT. Agricultural prices were 0.7% lower and gold fell by 0.5% to $1,161/ounce. 
  • The US dollar depreciated by 0.4% against the euro but appreciated by 0.6% against sterling.  The US dollar was unchanged against the yen over the week, at ¥122.7/$.
Economic Releases:
  • There weren’t many US economic data releases over the last week.  Exports shrank by 0.8% month-on-month in May and imports fell by less, resulting in a pick-up of the trade deficit to $41.9bn from $40.7bn as the strong dollar continues to leave its mark. The labor market remained firm based on a couple of reports - The JOLTS report showed that the number of job openings moved up in May for a second record month, with almost 5.4 million open positions in May, up slightly from April.  Initial claims for state unemployment benefits rose 15,000 in the previous week to a seasonally-adjusted 297,000, which was a little more than expected, but the 18th week in a row below 300,000.
  • Eurozone investor confidence has improved, despite the uncertain Greek situation, with the Sentix investor confidence index rising to 18.5 in July from 17.1 in the previous month. German industrial output was unchanged in May and April’s figure was revised down to 0.6% from 0.9%. Construction was the weak spot but Germany’s manufacturing output was stronger. Factory orders also appear fairly healthy with a 4.7% annual increase reported up to May.
  • Japanese economic data was mixed. The current account surplus (¥1636bn) for May was larger than expected (¥1375bn).  However, June’s economy watchers survey was disappointing. Both the current conditions and outlook components (51 and 53.5 respectively) were below consensus although both remain above the neutral 50 level. Machine orders for May were better than anticipated, growing by 0.6%, as markets had expected a 4.9% fall. Consumer confidence met expectations (41.7) in June, rising slightly from the previous month.
  • Chinese economic data was light, but revealed that, whilst CPI inflation rose slightly in June to 1.4%, producer prices fell by 4.8% over the same period.
Source: Aon Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream

The information contained above should be regarded as general information only. That is, your personal objectives, needs or financial situation were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of acting on this information, particularly in the context of your own objectives, financial situation and needs.Nothing in this document should be treated as an authoritative statement of the law on any particular issue or specific case, nor should it be treated as investment advice. Use of, or reliance upon any information in this post is at your sole discretion. It should not be construed as legal or investment advice. Please consult with your independent professional for any such advice. The blog content is intended for professional investors only.

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