The S&P/ASX 200 Accumulation Index was up 0.2% during the month. The Australian market managed a marginally positive return in June while global equity markets were mixed. Global markets were higher initially, with the Dow, S&P 500 and NASDAQ all hitting record highs. However equities suffered late in the month as bond markets sold-off after the UK and Europe indicated the potential for reduced stimulus measures.
Globally, Japan led gains with the Nikkei 225 returning 2.1% during the month. In the US, the S&P 500 finished up 0.6%. Europe lagged, with the Euro Stoxx 50 down 3.0% and the UK’s FTSE down 2.4% in June.
During the month, the Reserve Bank of Australia (RBA) maintained the cash rate at 1.50%. The RBA has maintained its prior view on the economy; that the temporary drags from the first quarter are reversing, that the labour market is improving, house prices are easing and that global growth remains positive. The RBA does have growing concerns over the outlook for consumers and elevated levels of debt growth.
In the latest economic data, Q1 GDP rose 0.3% for the quarter, with the annual rate at 1.7% (down from 2.4% previously), the slowest year on year pace since 2009. Retail sales for April grew a stronger than expected 1.0%. Building approvals for April were up 4.8%. Employment for May exceeded expectations, rising by 42,000 positions, driven largely by full-time employment. The unemployment rate fell to 5.5%, the lowest rate since February 2013. The NAB business confidence survey was lower at +7 in May from +13 in April. Meanwhile the business conditions survey remained steady, with a May reading of +12.
Amongst stock specific news, Vocus received a takeover offer from private equity firm KKR which saw the stock up 19.5% for the month. The Tabcorp and Tatts Group merger was approved by the Australian Competition Tribunal, but is contingent on the sale of Tabcorp’s Odyssey Gaming Services.
Sector returns were mixed during the month. The Healthcare sector was the best performer, up 6.1%. Financials ex-REITs (1.6%), Materials (0.6%) and Consumer Discretionary (0.5%) were also positive. The Industrials (-0.4%), Telecommunications (-1.5%), Consumer Staples (-2.6%), Utilities (-2.7%) and REITs (-4.8%) sectors were all negative. The worst performing sector was Energy (-6.9%) which was dragged lower by the falling oil price.
The Healthcare sector led gains, boosted by another strong month from CSL (6.8%). CSL performed strongly after announcing a USD 352 million (80%) stake in Chinese plasma fractionator Wuhan Zhong Yuan Rui De Biologics.
Financials ex-REITs posted a positive return during the month. Most of the banks bounced back in June after underperforming in May despite facing further headwinds as Moody’s joined S&P in downgrading the big four banks. The Commonwealth Bank (4.0%) was the strongest performer of the big four. Amongst the insurers, Insurance Australia Group (6.6%) upgraded margin guidance, due to higher than expected reserve releases. In contrast, QBE Insurance (-8.5%) downgraded guidance due to higher than expected claims activity in its emerging markets business.
The Materials sector outperformed the broader market following a rise in iron ore prices late in the month. This was despite index heavyweight BHP falling 2.6% in June. BlueScope Steel (14.9%) was a strong contributor to sector performance on the back of rising steel prices.
Interest rate sensitive sectors such as REITs, Utilities and Telecommunication suffered as bond yields rose. The REITs sector suffered further as the majority of the sector went ex-dividend in late June and the market digested an AUD 550 million equity-raising from Dexus.
The Energy sector underperformed. Sector heavyweights Origin Energy (-10.9%) and Woodside Petroleum (-7.1%) dragged the sector lower, as both stocks suffered due to the falling oil price.