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Market Wrap September 2020

Risk asset Strength continued

  • Global shares rose 6.2% and 3.5% in hedged and unhedged terms, respectively. Global equities continue to be led by the US market with Tech stocks the leaders as the tech-heavy Nasdaq Index rose by 9.6% in USD terms.
  • Emerging markets fell -0.9% during August in Australian Dollar (AUD) terms. One driver was the 2% rise of the Australian Dollar against the Hong Kong Dollar over the period with other emerging market currencies also weakening.
  • Australian shares underperformed global shares rising 2.8% in August. The month was defined by FY20 results reporting with Technology stocks rising over 15% as investors hunted for scarce growth while disappointment with the Telstra result saw the Communications Service sector fall over 5% during the month.
  • The Australian dollar (AUD) also continued to rally from its climb from late March lows with an 1.1% rise against major currencies and a 3.3% gain against the US dollar notably.
  • Fixed income returns were negative with Australian and international bond benchmarks falling -0.4% and -0.8% during August. Stronger growth expectations and a change in policy at the Federal Reserve saw bonds sell off and yields rise, driving negative returns.

As the economy gained momentum

Globally

  • The improvement in leading indicators continued in the US with the Redbook Index, a measure of major retailer sales, up 0.6% for the year to 25 August ending several months of negative results since April. The Conference Board Leading Economic Index has also recovered its losses from the pandemic suggesting we should continue to expect an economic recovery in the US.
  • Coronavirus cases appear to be stabilising at a global level although certain regions such as Europe are experiencing notable “second waves” of cases which have been less fatal thankfully than the early April experience. This along with new vaccine developments and a faster test by Abbott Laboratories continues to support the idea that the worst of the virus is behind us.

Locally

  • We saw confirmation that Australia had entered recession with two consecutive quarters of negative growth as the economy shrank 6.3% in the year to June.
  • The RBA left interest rates unchanged.
  • Coronavirus case growth in Victoria has slowed rapidly, so much so that lockdown restrictions will be gradually relaxed from early September.

Major asset class performance

Asset classes 1 month % 1 year % 5 years (p.a.) %
Australian shares 2.8% -5.1% 7.5%
Global shares (hedged to AUD) 6.2% 12.1% 10.3%
Global shares (unhedged) 3.5% 6.7% 9.6%
Global small companies (unhedged) 2.2% -2.4% 6.7%
Global emerging markets (unhedged) -0.9% 4.3% 7.7%
Global listed property (hedged to AUD)
2.0% -17.4% 2.6%
Cash 0.0% 0.7% 1.7%
Australian fixed income -0.4% 1.6% 4.4%
International fixed income -0.8% 2.4% 4.6%
Source: Bloomberg & IOOF, 31 August 2020
Indices used: Australian Shares: S&P/ASX 200 Accumulation Index, Global shares (hedged): MSCI World ex Australia Net Total Return (in AUD), Global shares (unhedged): MSCI World ex Australia Hedged AUD Net Total Return Index; Global small companies (unhedged): MSCI World Small Cap Net Total Return USD Index (in AUD); Global emerging markets (unhedged): MSCI Emerging Markets EM Net Total Return AUD Index; Global listed property (hedged): FTSE EPRA/NAREIT Developed Index Hedged in AUD Net Total Return; Cash: Bloomberg AusBond Bank Bill Index; Australian fixed income: Bloomberg AusBond Composite 0+ Yr Index; International fixed income: Bloomberg Barclays Global Aggregate Total Return Index Value Hedged AUD
Please note: Past performance is not indicative of future performance

Currency markets

Exchange rates At close on 31/8 1 month change % 1 year change %
USD/AUD 0.74 3.3% 9.5%
Euro/AUD 0.62 1.9% 0.8%
Yen/AUD 78.1 3.3% 9.1%
Trade weighted index 62.6 1.1% 6.3%
Source: Bloomberg & IOOF, 31 August 2020. All foreign exchange rates are rounded to two decimal places where appropriate.
Please note: Past performance is not indicative of future performance.

Disclaimer: This report has been prepared by the IOOF Research team for RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429. RI Advice Group Pty Ltd is a company within the IOOF group of companies consisting of IOOF Holdings Limited ABN 49 100 103 722 and its related bodies corporate. This report is current as at the date of issue but may be superseded by future publications. The information in the report may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of RI Advice Group Pty Ltd. This report may be used on the express condition that you have obtained a copy of the RI Advice Group Pty Ltd Financial Services Guide (FSG) from the website. RI Advice Group Pty Ltd and/or its associated entities, directors and/or its employees may have a material interest in, and may earn brokerage from, any securities or other financial products referred to in this report, or may provide services to the companies referred to in this report. This report is not available for distribution outside Australia and may not be passed on to any third person without the prior written consent of RI Advice Group Pty. RI Advice Group Pty and associated persons (including persons from whom information in this report is sourced) may do business or seek to do business with companies covered in its research reports. As a result, investors should be aware that the firms or other such persons may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision. This report has been prepared in good faith and with reasonable care. Neither RI Advice Group Pty nor any other person makes any representation or warranty, express or implied, as to the accuracy, reliability, reasonableness or completeness of the contents of this document (including any projections, forecasts, estimates, prospects and returns and any omissions from this document). To the maximum extent permitted by law RI Advice Group Pty, its related bodies corporate and their respective officers, employees, representatives and associates disclaim and exclude all liability for any loss or damage (whether foreseeable or not foreseeable) suffered or incurred by any person acting on any information (including any projections, forecasts, estimates, prospects and returns) provided in, or omitted from this report.

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Elliot Watson

Elliot Watson*

Elliot Watson is an award-winning Certified Financial Planner with over 15 years' experience. He is passionate about helping people grow and protect their wealth.

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