Over the month, investor confidence was shaken in response to events in Cyprus and the possible implications for the broader European region. The plan for Cyprus to impose a tax on bank deposits quickly raised concerns that a banking crisis could eventuate and also that the proposed tax could become a ‘template’ policy solution for other 'debt-troubled' European nations. China's ability to manufacture a slow-down in its property market also weighed on markets. This had a trickle-down effect to commodities which generally struggled over the month. The US S&P500 index continued its recent stellar run and managed to reach new all time highs by month end – an extraordinary result considering recent sentiment in relation to Europe and China, as well as the automatic US budget cuts which will remove US$85 billion from US agency budgets between March and October. In Japan, local equity markets continued to rally on the back of strong US data combined with increasing optimism that Japan would continue to pursue aggressive monetary easing.

The S&P/ASX300 Accumulation Index underperformed hedged global equities returning -2.3 per cent, its first negative month in ten months. Resources were once again the main detractor from the overall performance of the Index as the Materials sector significantly lagged the broader market with a return of -9.6 per cent. Other sectors that recorded negative results over the month were Energy, Industrials, Consumer Staples, Health Care and Telecoms. The best performing sector of the market was Consumer Discretionary while Financials, IT, Utilities were all flat.

The MSCI World ex-Australia Index, hedged in AUD, was up 3.1 per cent over the month. With the AUD strengthening against all major currencies, unhedged returns in AUD were slightly weaker with a gain of 0.7 per cent. Major markets that performed well over the month included the US with a gain of 3.8 per cent, the UK with a gain of 1.2 per cent and Japan with a gain of 7.0 per cent. The Euro region generally posted more subdued returns due to concerns in relation to Cyprus. Emerging markets, unhedged in AUD, returned 3.5 per cent and underperformed developed markets due to weaker performance from China, South Korea and Russia. From a global sector perspective, Materials was the notable underperforming sector. Energy, Industrials, Financials and IT also posted negative returns over the month. Strong performance was achieved by the Consumer Discretionary, Consumer Staples, and Telecommunications sectors. Health Care was the strongest performing sector over the month.

The S&P/ASX 300 Property Trusts Index had a weak month returning -2.6 per cent and underperforming both global listed property, hedged in AUD, and the broader Australian equity market. Despite this, the sector has had a very strong past 12 months, returning 30 per cent. Domestic unlisted property had another positive month returning 0.5 per cent, most of which was driven by yield. Domestic unlisted property outperformed domestic listed property over the month. Listed domestic infrastructure and utilities returned 3.0 per cent and outperformed the broader domestic equities market.

The yields on 10-year Government bonds for the Euro area, UK and US all tightened over the month. Due to concerns in relation Cyprus, it is not surprising that European and UK Government bonds tightened the most, As such, long duration global fixed interest rate investments generally performed well, hedged in AUD. Global credit (as measured by the Barclays Capital Global Credit Index, hedged in AUD) continues to perform well. The yields on 10-year Australian Government bonds widened over the month. As such, long duration domestic fixed interest rate investments generally struggled. Long duration domestic inflation linked bonds fared the worst over the month.

Recent events in Cyprus emphasize that the market recovery is still vulnerable to shocks and rapid changes in sentiment. For the time being, investor sentiment appears to be in two camps: one is of the view that the recent market rally isn’t supported by earnings growth, while the other believes that there is a 'weight of money' moving from bonds to equities which will continue to support equity prices.