Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Crisis fears cause jittery market
The cauterising of the Credit Suisse wound over the weekend, as emergency talks in Europe ended with UBS buying its embattled rival in a $4.5 billion acquisition – half the value Credit Suisse had at the end of last week – calmed markets to some degree on Monday, but the benchmark S&P/ASX200 index still finished down 96.3 points, or 1.4 per cent, at 6,898.5, its lowest level since November 4. The broader All Ordinaries index lost 103.1 points, also 1.4 per cent, to 7,085.1.
Energy stocks had a bad day, with the sector index retreating 3 per cent as Brent crude fell to a 16-month low of $US72 a barrel. Woodside Energy fell 94 cents, or 2.9 per cent to $31, Santos slipped 19 cents, or 2.7 per cent to $6.74, and Brazilian-based producer Karoon Energy gave up 13 cents, or 6.5 per cent, to $1.94.
Coal was also hit hard: Whitehaven Coal lost 31 cents, or 4.6 per cent, to $6.37; New Hope Corporation slid 29 cents, or 5.6 per cent, to $4.90; Yancoal Australia retreated 18 cents, or 3.2 per cent, to $5.40; Coronado Global Resources gave up 7.5 cents, or 4.2 per cent, to $1.69; and Stanmore Resources fell 10 cents, or 3.1 per cent, to $3.09.
Gold shine amid mining gloom
One sector firmly going against the trend was gold mining, with the yellow metal jumping to a 12-month high on the whiff of crisis fears. Gold Road Resources surged 16 cents, or 11 per cent, to $1.67; Evolution Mining jumped 26 cents, or 10.1 per cent, to $2.84; Northern Star Resources added 93 cents, or 8.5 per cent, to $11.82; and Newcrest Mining advanced $1.44, or 6 per cent, to $25.65
Among the big bulk miners, BHP eased 43 cents, or 1 per cent, to $42.96; Rio Tinto retreated 81 cents, or 0.7 per cent to $113.99; and Fortescue Metals gave up 62 cents, or 2.9 per cent, to $20.80.
In lithium, Pilbara slipped 19 cents, or 5.2 per cent, to $3.48, while fellow producer Allkem declined 44 cents, or 4.2 per cent, to $10.09. Among the lithium project developers, Liontown Resources shed 15 cents, or 9.4 per cent, to $1.50, US-based Piedmont Lithium retreated 4.5 cents, or 5.5 per cent, to 78 cents, Lake Resources eased 2 cents, or 3.9 per cent, to 50 cents, and Core Lithium lost 3 cents, or 3.6 per cent, to 81 cents.
In the big banks, National Australia Bank dipped 42 cents, or 1.5 per cent, to $27.86; ANZ lost 32 cents, or 1.4 per cent, to $22.49; Westpac was down 12 cents, or 0.6 per cent, to $21.12; and Commonwealth Bank fell 37 cents, or 0.4 per cent, to $96.08. Macquarie Bank
Diversified global banking and investment company Macquarie lost $8.01, or 4.6 per cent, to $167.78 as it shared the general market nervousness in Asia, which saw HSBC close down 6.1 per cent in Hong Kong, after being down 7.2 per cent at one point.
US markets go green
In the US, markets finished in the green, as fears of a full-scale banking crisis eased somewhat. The 30-stock Dow Jones Industrial Average added 382.6 points, or 1.2 per cent, to 32,244.58, while the broader S&P 500 index gained 34.9 points, or 0.9 per cent, to 3,951.57, and the tech-laden Nasdaq Composite index lifted 45 points, or 0.4 per cent, to 11,675.54.
But markets are still wary of Wednesday’s Federal Reserve interest rate decision; with CME’s FedWatch tool indicating that the market thinks there is a 73 per cent chance of a 25 basis-point (0.25 percentage points) rate rise in the offing. The other 27 per cent expects no hike, on the grounds that the banking semi-crisis is tightening access to capital and is a de facto rate rise in itself.
European stock markets closed higher Monday as investors digested news of UBS’ absorption of Credit Suisse. The Euro Stoxx 600 index closed 1 per cent higher, with all sectors gaining.
In the bond market, the US 10-year Treasury yield picked up 8.6 basis points, to 3.483 per cent, while the more rate-sensitive 2-year yield gained 12 basis points to 3.966 per cent.
Gold hit a fresh 12-month high, up US$1.96, or 0.1 per cent, to US$1,978.80 an ounce, while in oil, the global benchmark Brent crude gained 73 cents, or 1 per cent, to US$73.70 a barrel and US West Texas Intermediate rose 87 cents, or 1.3 per cent, to US$67.61 a barrel.
The Australian dollar is buying 67.18 US cents this morning, up from 66.74 US cents at the local close on Monday.
