Stock Market Wrap-Up – June 2018

The S&P/ASX 200 Accumulation Index rose 3.3% during the month. The Australian equities market outperformed global equity markets in June as prospects of a trade war continued to weigh heavily on markets. Developed markets outperformed emerging markets for the third consecutive month. In major global developed markets, returns were anaemic with the US S&P 500 and Japan’s Nikkei 225 both up by 0.6%. Europe lagged with the UK’s FTSE 100 and the Euro Stoxx 50 both down 0.2%.

During the month, the Reserve Bank of Australia (RBA) maintained the cash rate at 1.50%. The RBA continues to maintain its view on the economy with global growth strengthening and global inflation remaining low.

Domestic economic data releases were mixed in June. GDP exceeded expectations, growing 1.0% for the March quarter and 3.1% for the year. Growth was driven by net exports, growing government consumption and inventories. Employment grew with 12,000 positions added in May. Meanwhile the unemployment rate fell to 5.4%. The NAB Survey of Business Conditions eased from recent record highs, recording +15 in May. Business confidence was also lower, falling to +6 from +11. Retail sales were higher than expected in April, up 0.4%. Building approvals disappointed, falling 3.2% in May in addition to a larger revised fall of 5.6% in April.

In stock specific news, Hong Kong based infrastructure group CKI launched a takeover bid for APA Group at AUD 11 per share. This saw the stock gain over 16% during the month. Meanwhile Santos rejected Harbour Energy’s takeover proposal and terminated discussions.

Sector returns were mostly positive in June. The best performing sectors were Energy (7.8%) Technology (6.3%) and Consumer Staples 6.2%). Utilities (6.0%), Financials (4.1%), Health Care (2.6%), Real Estate (2.6%), Consumer Discretionary (2.1%), Materials (1.8%) and Industrials (0.7%) were also positive. Telecommunications (-5.8%) was again the worst performing sector during the month, and the only one to post negative returns.

Sector returns were mostly positive in May. The best performing sectors were Health Care (5.6%). Consumer Discretionary (5.1%), Real Estate (3.1%) and Materials (2.0%). Technology (1.4%), Utilities (1.1%), Industrials (1.1%) and Energy (0.2%) were also positive. Financials (-0.2%) and Consumer Staples (-0.4%) posted negative returns. Telecommunications (-10.2%) was the worst performing sector during the month.

The Energy sector was buoyed by higher oil prices. Crude oil prices were supported by supply disruptions, including the push by the US for all countries to stop importing crude oil from Iran, beginning in November. Key beneficiaries included Woodside Petroleum (9.4%), Oil Search (7.6%) and Santos (7.0%).

Technology also had a strong month, led higher by Computershare (6.3%), Xero Ltd (9.9%) and IRESS (16.3%).

The Consumer Staples sector outperformed driven largely by sector heavyweights, Woolworths (7.2%) and Wesfarmers (8.3%). The market reacted positively to Wesfarmers’ strategy day where it was outlined that organic growth is the focus.

The Materials sector underperformed the market as commodity prices endured a difficult month and gold and metal prices were lower. Key detractors from sector performance included Fortescue Metals Group (-6.4%) and South32 (-3.0%).

The Industrials sector underperformed the market. Key underperformers included Qantas (-3.0%) and Brambles (-1.7%).

The Telecommunication sector was the laggard again, dragged down by index heavyweight Telstra (-6.4%). Telstra’s much anticipated investor day saw it lower its earnings forecasts on a weaker than expected mobile outlook which disappointed the market.

Source: Nikko Asset Management – Brad Potter, Head of Australian Equities