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Market Wrap – May 2020

A relief rally for (most) markets

  • Global shares rose 10% and 3.6% in hedged and unhedged terms, respectively.
  • Emerging markets were relative underperformers (up 2%) as their currencies remained under pressure during the month with the Australian dollar appreciating against the Chinese Yuan, Brazilian Real and others. Factors such as sizeable coronavirus outbreaks in emerging markets (excluding China) played a contributory role.
  • Australian shares outperformed unhedged global shares, rising 8.8% in March. Strength in consumer-exposed sectors such as Consumer Discretionary (+16%) or Property (+14.3%) played a part as the coronavirus outbreak in Australia has been increasingly contained with less than 900 active cases remaining.
  • The Australian dollar (AUD) rose against major currencies by 5.7%. Partly this reflected the divergent coronavirus outcomes with Australia more successful than other countries in containing its outbreak raising expectations of getting “back to normal” sooner.
  • Fixed income assets were mixed with Australian fixed income flat while international fixed income rose 1.5%. Australian bonds were hurt by slightly higher bond yields while international bonds gained on stronger risk-seeking seeing corporate bond prices bid higher.

As economic data remains negative

Globally

  • Global business surveys point towards continued weakness in the near term with the JP Morgan Global Manufacturing PMI remaining in contractionary territory (pointing to weaker economic growth).
  • Coronavirus case growth has slowed in developed economies but remains a struggle for emerging markets such as Russia or Brazil.
  • Stimulus continues with central bank bond programs seeing the Federal Reserve balance sheet expand to ~30% of US GDP. This buying activity helped stabilise credit markets with client transaction costs falling over the month.

Locally

  • The RBA began reducing its own bond purchases from a sizeable $4-5 billion per day to $750m by late April as its efforts to stabilise local bond yields were successful.
  • Inflation surprised at 2.2% year-on-year for the March quarter driven by food price inflation from the drought.
  • Increased expectations of weak economic performance in 2020 with consensus forecasts and the IMF predicting recession in 2020 and recovery in 2021.

Major asset class performance

Asset classes 1 month % 1 year % 5 years (p.a.) %
Australian shares 8.8 -9.1 3.5
Global shares (hedged to AUD) 10.0 -5.8 5.6
Global shares (unhedged) 3.6 3.5 9.0
Global small companies (unhedged) 6.1 -7.7 6.4
Global emerging markets (unhedged) 2.0 -5.4 3.7
Global listed property (hedged to AUD)
6.1 -19.0 0.2
Cash 0.0 1.1 1.8
Australian fixed income -0.1 6.4 4.5
International fixed income 1.5 7.2 4.3
Source: Bloomberg & IOOF, 30 April 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 30/4 1 month change % 1 year change %
USD/AUD 0.65 6.2 -7.6
Euro/AUD 0.59 6.9 -5.4
Yen/AUD 69.8 5.8 -11.2
Trade weighted index 57.8 5.7 -4.5
Source: Bloomberg & IOOF, 30 April 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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