Global share markets dropped sharply in March because of the conflict in the Middle East, and because investors reassessed potential growth against inflation risks. The MSCI World Index (AUD hedged) fell -5.7% over the month. Over a rolling 12 months, though, this measure is still up 18.3%.
USA
US equities fell (S&P 500 down -5.0%). This drop was driven by the conflict in Iran and ongoing uncertainty over US monetary policy. Some economic data pointed to inflationary pressures. Given the potential that the conflict in Iran will further raise inflation, it is expected that the US Federal Reserve will keep rates at current levels over the next 12 months.
Asia
Asian share markets declined sharply in local currency terms, particularly in large net energy‑importing economies. Japanese shares weakened (MSCI Japan Index down -10.6%) driven by concerns of higher input costs and tighter financial conditions.
South Korean shares also fell, wiping out February’s gains. The MSCI Korea Index recorded its steepest decline since the global financial crisis, triggering a circuit breaker and ending the month down -20.6%.
Europe
European shares underperformed other developed markets in March. This was largely due to energy price volatility in Europe. The MSCI Europe Index (in Euros) declined -7.6%. The European Central Bank maintained rates in March. The ECB acknowledged there is increased uncertainty around inflation and economic activity more generally.
Australia
Australian equities declined -7.3%, due to weaker global risk sentiment and commodity conditions, and due to increased uncertainty around domestic monetary policy. Sector performance was broadly negative, with the worst performers being Materials (‑13.2%), Information Technology (‑12.9%), and Property Trusts (‑11.2%). Energy performed well (+19.2%), alongside Utilities (+4.9%) and Consumer Staples (+1.7%). However, as Energy represents less than 5% of the ASX 300, the performance of this sector only had minimal impact on the broader market. The Reserve Bank of Australia raised the cash rate by 25 basis points to 4.10% at its March meeting. Markets have typically factored in the potential for further rate rises later in the year.
Currency and bonds
Government bond yields were up in March. US 10‑year Treasury yields increased 36 basis points to 4.32%, and there were negative returns for overseas bonds of -1.9%. Australian 10‑year government bond yields rose 33 basis points to 4.98%, and Australian bonds returned -1.4% over the month.
The Australian dollar weakened 3.9% against the U.S. dollar over March. While further RBA rate rises may offer some medium‑term support to the currency, shorter‑term pressures remain linked to global growth uncertainty and energy‑driven inflation risks.