The September quarter was a disappointing one for investors who weren't sitting in cash or fixed interest. Following some improvements in August, share markets ended the three months deeply in the red as concern mounted about whether the US economy was heading for recession and the safety of its financial sector.

Several large US financial groups faltered as their debt soared in the wake of the US's sub-prime loan crisis and global credit crunch. Among them were government lenders Fannie Mae and Freddie Mac, Lehman Brothers, Merrill Lynch, American International, Wachovia and Washington Mutual. In Europe, companies like HBOS, Bradford and Bingley and Fortis were also unable to escape the turmoil in global markets.

This turmoil and worries about the deteriorating balance sheets of other US banks almost brought normal banking operations to a halt and looked set to stifle global economic activity. The US Federal Reserve and the US Treasury quickly stepped in with a dramatic rescue plan to take over troubled assets from struggling institutions. The fact that the rescue plan was defeated in the US Congress just as the September quarter drew to an end caused share markets around the globe to fall. It has since been passed.

The market commentary below is provided to give an indication of the various factors affecting the investment performance of individual asset classes. It is based only on the gross performance of the relevant market index and no allowance is made for taxes or fees as they apply in your superannuation investment. It is provided merely as an indication of relative performance between asset classes and should not be used as a measure for judging the performance of your investment strategy.

Australian shares

Shares in Australia did not escape the carnage on world financial markets. Australian banks appear to be well capitalised and profitable when compared with their US counterparts. Nonetheless, local investors worried about the impact of weaker economic conditions and softening consumer spending in Australia, a possible recession in the US and a spate of bad news about the Chinese economy. [China's boom and its demand for our resources have helped fuel Australia's economic growth in recent years.]

Mining stocks came off strongly, contributing to the S&P/ASX 200 Accumulation Index's fall of 10.4 per cent over the quarter. Shares were dragged down more heavily towards the end of September when the US government's rescue plan was initially defeated in Congress. The market is now down 26.8 per cent over twelve months.

International shares

Investors fled from equity markets as concerns grew about the US economy and the problems in its financial system. World markets fell by 15.7 per cent in the September quarter. In September alone, they slumped 10.8 per cent although this translated to a fall of 3.6 per cent in Australian dollar terms because of a significant weakening in the value of the Australian currency against others.

All major share markets fell sharply with equity markets in emerging countries performing worse than those in developed nations.

Listed Property Trusts (LPTs)

The global financial crises encouraged investors to take a closer look at LPTs and their earnings, and to shun groups that have funded their operations through the heavy use of debt. Some LPTs have experienced difficulties in rolling over their debt and have cut dividends or have tried to sell some of their assets. A slowdown in future rental income and the exposure some LPTs have to slowing overseas markets have also worried investors.

Following a poor performance in the previous financial year, LPTs fell a further 1.7 per cent over the quarter despite making some gains in August. They ended the year to September down 40.4 per cent.

Fixed Interest and Cash

As the global financial crisis took hold, investors sought refuge in government and highly rated bonds and avoided the lower rated corporate bond market which has suffered from a rise in defaults and funding problems in the wake of the credit crunch. Australian bonds returned 5.3 per cent over the September quarter while international bonds grew by 2 per cent. Cash returned 1.9 per cent for investors in the September quarter.