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Market Wrap October 2020

“Risk on” rally faltered…

  • Global shares fell 2.9% and 0.3% in hedged and unhedged terms, respectively. Global equities were led on the downside by the US market with Tech stocks struggling as the tech-heavy Nasdaq Index fell by -5.2% in USD terms.
  • Emerging markets rose 1.5% during September in Australian Dollar (AUD) terms.
  • Australian shares underperformed global shares falling
    -3.7% in September. The month was defined more by global events as well as local concerns for our Banking sector. Banks remain a large part of our market and heightened speculation of another RBA rate cut hurt the sector. This is because a large amount of bank revenue relies on the spread between the rates they charge and their cost of funding. Lowering rates constrains the ability to generate interest income and saw the Financials sector slump -6.9%.
  • The Australian dollar (AUD) also faltered with a -3% fall against major currencies and a -2.9% fall against the US dollar.
  • Fixed income returns were positive with Australian and international bond benchmarks rising 1.1% and 0.4% during September. Speculation of another RBA interest rate cut and concern over a surge in coronavirus cases in Europe drove bond yields lower (and returns higher).

As the pandemic gained momentum

Globally

  • In our August update we highlighted the surge in cases within Europe. This continued into September and has triggered new but limited restrictions on people’s freedom of movement and certain businesses in the UK amongst other countries.
  • President Trump was himself infected with the coronavirus but has since, it appears, recovered.

Locally

  • The RBA left interest rates on hold as market speculation of another rate cut following the FY21 Budget intensified.
  • Coronavirus case growth in Victoria has continued to slow with lockdown restrictions being eased while in NSW we are seeing a return to larger scale public events from late October.
  • Economic data was mixed with the unemployment rate falling to 6.8% (down from 7.5%) in a positive sign for most States excluding Victoria. However, August retail sales fell 4% with weakness pronounced across the board suggesting the 3.2% surge in July may have been more reliant on early release of superannuation funds which has since slowed.

Major asset class performance

Asset classes 1 month % 1 year % 5 years (p.a.) %
Australian shares -3.7 -10.2 7.3
Global shares (hedged) -2.9 6.4 10.4
Global shares (unhedged) -0.3 4.3 10.1
Global small companies (unhedged) 0.8 -3.3 7.5
Global emerging markets (unhedged) 1.5 4.0 8.5
Global listed property (hedged)
-2.6 -21.5 1.8
Cash 0.0 0.6 1.6
Australian fixed income 1.1 3.2 4.5
International fixed income 0.4 3.5 4.5
Source: Bloomberg & IOOF, 30 September 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 30/9 1 month change % 1 year change %
USD/AUD 0.72 -2.9 6.1
Euro/AUD 0.61 -1.1 -1.3
Yen/AUD 75.5 -3.3 3.6
Trade weighted index 60.7 -3.0 2.5
Source: Bloomberg & IOOF, 30 September 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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