Stock Market Wrap-Up – April 2018

The S&P/ASX 200 Accumulation Index rose 3.9% during the month. The Australian equities market finished the month on a positive note following three months of losses. April saw emerging markets outperform developing markets, a stronger USD, ongoing trade concerns and Russian sanctions. Domestically strong market performance was overshadowed by the negative stories arising from the Financial Services Royal Commission, with AMP bearing the brunt of bad news with both the CEO and Chair resigning.

In major global developed markets, UK’s FTSE 100 was the strongest market returning 6.7%, the Euro Stoxx 50 was up 4.8%, Japan’s Nikkei 225 was up 4.7% whilst the US S&P 500 was up 1.1%.

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 remains 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 generally disappointed in April. The inflation result was softer than expected, with the CPI rising 1.9% in the year to March 2018 and unchanged from the previous quarter. Employment growth was weak, with only 4,900 positions added in March, with the unemployment rate steady at 5.5%. The March NAB Survey of Business Conditions was weaker, falling 7 points to +14. Business confidence was also weaker, falling to +7 from +9. Retail sales exceeded expectations rising by 0.6% for February. Sales rebounded in clothing, footwear and accessories as well as department stores.

In stock specific news, Healthscope received a takeover bid priced at $2.36 cash per share from a private consortium, resulting in shares of Healthscope surging 25.6%. AMP was the worst performing stock in the ASX 200 this month following revelations of misconduct during the Financial Services Royal Commission.

All sectors managed a positive return in April. The best performing sectors were Energy (10.8%), Materials (7.6%) and Health Care (7.4%). These were followed by strong returns from Consumer Staples (5.8%), Real Estate (4.3%), Industrials (3.5%), Consumer Discretionary (3.3%), Technology (2.9%), Utilities (2.3%) and Telecommunications (2.0%). The Financial (0.2%) sector was the worst performing sector during the month.

The Energy sector was the top performing sector in April due to a spike in crude oil prices. Sector heavyweights Woodside Petroleum (10.2%) and Origin Energy (12.1%) were the key contributors following a strong quarterly production report and the disclosure of better-than-expected cash distributions from APLNG respectively.

The Materials sector outperformed following a pick-up commodity prices. In addition, positive quarterly updates from key sector names; BHP (9.7%), Rio Tinto (9.8%) and South32 (15.5%), boosted performance.

The Health Care sector also had a strong month. The two biggest contributors were CSL (9.6%) and Healthscope (25.6%) after the latter became a takeover target.

The Utilities and Telecommunication sectors underperformed most other sectors during April. Sector heavyweights AGL (0.2%) and Telstra (1.3%) were the key contributors which subsequently was a drag on performance.

The Financials sector was again weighed down by the banks, following mounting evidence of widespread misconduct presented at the second round of the Financial Services Royal Commission hearings. AMP (-19.0%) bore the brunt of the pain as the company faces significant reputational damage, and the possibility of significant penalties following admissions of inappropriate financial advice and fees for no service.

Source: Brad Potter, Nikko Asset Management