The S&P/ASX 200 Accumulation Index fell 3.8% during the month. The Australian equities market underperformed major markets in March having faced numerous headwinds during the month. Global equities underperformed as fears of a trade war grew following the introduction of trade tariffs by the US, while tech stocks fell following the Cambridge Analytica controversy impacting Facebook. The local market was also impacted by the Royal Commission which hurt financials and the fall in commodity prices that affected material stocks.
In major global developed markets, Japan’s Nikkei 225 was down 3.4%. The US fared slightly better with the S&P 500 falling 2.5%. The Euro Stoxx 50 was down 2.2%, while the UK’s FTSE 100 fell 2.0%.
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 continuing to improve and global inflation remaining low. The RBA’s forecast is for the Australian economy to grow faster in 2018 than it did in 2017. Household consumption is the main source of uncertainty for the RBA, as income growth is slow and debt levels remain high.
Domestic economic data releases were generally positive in March, although there were some exceptions. Q417 GDP growth disappointed at 0.4%, although the prior quarter was revised up slightly from 0.6% to 0.7%. Employment grew by 17,500 positions in February, with the unemployment rate rising slightly to 5.6%. Employment gains were skewed towards full-time positions, while part-time jobs fell. The NAB Survey of Business Conditions was stronger, rising 3 points to +21. However business confidence was weaker, falling to +9 from a downwardly revised +11 in January. Retail sales rose a weaker than expected 0.1% in January.
In stock specific news, Wesfarmers announced it plans to demerge Coles in FY19 subject to the relevant approvals. Wesfarmers proposes to maintain a minority interest in Coles following the demerger. Current Coles Managing Director John Durkan will step down later this year, to be replaced by Metcash CEO Steven Cain.
Only one sector managed to eke out a positive return in March, with Real Estate returning 0.1%, while the remaining sectors posted negative returns. Utilities (-0.8%), Industrials (-1.1%), Consumer Staples (-1.7%) and Information Technology (-1.6%) were the best of the worst. The Consumer Discretionary (-2.4%), Energy (-2.5%), Health Care (-3.2%), Materials (-4.3%), Financials (-5.8%) and Telecommunications (-6.1%) sectors were the worst performing sectors during the month.
The Real Estate sector managed to stay positive as the bond sell-off reversed. Lendlease (-3.0%) and Westfield Corporation (-2.7%) were the two biggest detractors in the sector. Muted positive performance from a number of REITs such as Goodman Group, Cromwell Property and Mirvac Group offset some of the losses.
The Utilities sector posted mildly negative returns. Sector heavyweights AGL Energy (-0.8%) and APA Group (-1.5%) were the key detractors.
The Materials sector underperformed as the impact of a potential trade war saw a fall in bulk commodity prices. Iron ore slumped 17.8% amid softening Chinese steel prices, coking coal fell 16.9% while aluminium fell 6.5%. Sector heavyweights BHP (-5.3%) and Rio Tinto (-7.8%) were the biggest detractors.
The Financials sector was weighed down by the banks, following the Royal Commission’s first round of public hearings. The banks have been grilled on issues including residential mortgages and credit cards, however there have not been any major revelations of which the market isn’t already aware. A new wave of offshore shorting has also weighed on the share prices of the banks. The big four banks were the biggest detractors with ANZ down 7.5%, Westpac down 7.0%, National Australia Bank down 5.6% and Commonwealth Bank down 5.3%.
The Telecommunications sector was the worst performer, driven by sector heavyweight Telstra (-6.3%). Telstra continued to underperform as the market factors in the heightened competition being seen across the telecommunications sector. Investors globally are reticent to step into the sector given rising interest rates, capital expenditure risk from fibre roll-outs and the potential for expensive 5G spectrum auctions.