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CSS investment performance – period ending March 2010

Investment markets have been supported by the policy-driven recovery in economic activity, which has expanded from its lead in emerging Asia, and is now gathering some momentum across the advanced economies.

CSS investment performance – period ending March 2010
The Default Fund returned 2.5% over the three months to 31 March 2010, while the one-year performance was 14.8%. The Cash Investment Option returned 0.9% over the past three months to 31 March 2010, while the one-year performance was 2.9%.

CSS performance – period ending March 2010*

* These figures are after fees and tax

CSS March quarter financial market and performance report
Investment markets have been supported by the policy-driven recovery in economic activity, which has expanded from its lead in emerging Asia, and is now gathering some momentum across the advanced economies.

Despite this, the strength of economic recovery remains highly differentiated, with deeply-indebted governments and households and recuperating banking sector balance sheets across Europe, the US and Japan containing the growth of private demand. Countries like Iceland, Greece, and, to a lesser extent, Portugal and Spain provide extreme examples of these dynamics. Meanwhile, economies with better fundamentals, including Asia and Australia, have delivered more resilient growth.

The divergence in economic performance raises challenges for policymakers as they consider setting a time-line for normalisation of interest rates (Australia has already started this process), and, in due course, for reducing budget deficits. In particular, extended periods of very low interest rates in the developed world create the risk of bubbles in high-growth economies, and/or financial asset prices. This increases the risk of poor long-term returns on that capital and could also increase asset market and economic volatility.

Despite these issues, the combination of fiscal policy stimulus, low interest rates and economic recovery underpinned a rally in credit and equity markets over the March quarter. For the three months to 31 March, Australian and International developed equity markets rose 1.3% and 5.5%, respectively.

Both nominal and inflation-linked government bonds also produced solid returns in the quarter as bond yields remained low. The Australian dollar appreciated by more than 8% against the Euro and the British Pound, and by 2.9% on a trade-weighted basis.