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Market Wrap – April 2020

Market Wrap – April 2020

Flight to safety globally escalated

  • Global shares fell -13.4% and -8.3% in hedged and unhedged terms, respectively. Emerging markets were relative underperformers (down -10.9%) as they were caught up in a flight to liquidity (cash) by investors seeking safe-haven assets instead. An oil price war triggered by Saudi Arabia also impacted emerging markets with their greater dependence on energy and other commodity exports.
  • Australian shares underperformed global shares, falling -20.7% in March. This was driven by weakness in the Energy (down 38%) and Property (down 35.3%) sectors due to the fall in oil prices and the expected cost of the coronavirus-induced lockdown for landlords respectively.
  • The Australian dollar (AUD) fell against major currencies by -4% attributable to expectations of weaker global growth from the coronavirus as well as the two interest rate cuts by the RBA. Rate cuts make our currency less attractive to hold due to the lower interest income.
  • Fixed income assets struggled with the sell-off in corporate bonds offset the gains in government bonds. This saw slightly negative returns for Australian and international fixed income.
  • The weakness in corporate bonds was due to the fears of economic recession and a flight to safety response among investors. This saw prices of corporate bonds fall substantially (global corporate bonds hedged to AUD fell 7.2% during March) dragging overall benchmark returns lower.

As the likelihood of a coronavirus-induced recession increased…

Globally

  • Global business surveys softened with the JP Morgan Global Manufacturing PMI remaining in contractionary territory (pointing to weaker economic growth).
  • Coronavirus cases continued to grow substantially particularly in Europe and the USA with Italy, Spain and New York City now prominent hotspots.
  • Major stimulus programs accounting for trillions of dollars have been enacted across the world to counter the likely recessionary impact.

Locally

  • The RBA cut the cash rate by 0.5% from 0.75% to a new low of 0.25% by month-end citing concerns over the coronavirus outbreak’s recessionary implications.
  • The Australian government has committed to tens of billions in stimulus through increased welfare payments and a new business support payment to cover wage costs from May.

Major asset class performance

Asset classes 1 month % 1 year % 5 years (p.a.) %
Australian shares -20.7 -14.4 1.4
Global shares (hedged to AUD) -13.4 -11.1 3.9
Global shares (unhedged) -8.3 4.4 8.1
Global small companies (unhedged) -15.7 -9.7 4.6
Global emerging markets (unhedged) -10.9 -4.5 4.2
Global listed property (hedged to AUD)
-23.4 -24.5 -1.5
Cash 0.1 1.2 1.8
Australian fixed income -0.2 6.8 4.2
International fixed income -1.7 5.6 3.9
Source: Bloomberg & IOOF, 31 March 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 29/2 1 month change % 1 year change %
USD/AUD 0.61 -5.9 -13.6
Euro/AUD 0.56 -5.8 -12.1
Yen/AUD 65.9 -6.3 -16.2
Trade weighted index 54.7 -4.0 -9.6
Source: Bloomberg & IOOF, 31 March 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. General Advice Disclaimer: The information in this report is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this report, you should assess your own circumstances or seek advice from a financial adviser. Where applicable, you should obtain and consider a copy of the Product Disclosure Statement, prospectus or other disclosure material relevant to the financial product before you acquire a financial product. It is important to note that investments may go up and down and past performance is not an indicator of future performance.
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