The S&P/ASX 200 Accumulation Index was down 0.45% during the month. The Australian equities market underperformed despite continued strength in commodity prices, particularly the oil price, and solid domestic economic data.
Globally, equity markets posted strong returns despite concerns late in the month over rising bond yields. Emerging markets again outperformed developed markets. Amongst developed markets, the US performed strongly with the S&P 500 up 5.7%. The Euro Stoxx 50 was up 3.1% while Japan’s Nikkei 225 was up 1.5%. The UK’s FTSE 100 was the laggard, returning -2.0% in January.
The latest domestic economic data releases were strong in January. Residential building approvals for November increased a higher-than-expected 11.7%, largely due to the higher density sector where approvals surged 36%. Employment grew by a stronger-than-expected 34,700 positions in December, while the unemployment rate rose slightly to 5.5%. The NAB Survey of Business Confidence increased from +7 to +11 in December, the highest level since April 2017. Retail sales also came in higher-than-expected, rising 1.2% in November. The headline Consumer Price Index for Q417 disappointed however, growing at a weaker-than-expected 0.6%.
In stock specific news, Sirtex Medical surged 66.2% following an acquisition proposal from Varian Medical Systems Inc. The Commonwealth Bank announced the appointment of a new Chief Executive Officer, Matt Comyn. QBE Insurance downgraded guidance for FY17 due to significant catastrophe activity in Q417 as well as a strengthening of claims provisions.
The majority of sectors posted negative returns over the month. The best performing sectors were Health Care (3.2%), Telecommunications (0.8%) and Materials (0.5%). The remaining sectors were negative, including Consumer Staples (-0.1%), Consumer Discretionary (-0.2%), Energy (-0.5%), Financials (-0.8%), Industrials (-3.1%) and Real Estate (-3.3%). The Utilities (-4.5%) sector was the worst performing sector during the month.
The Healthcare sector was the best performer, with CSL (3.6%), Resmed (13.5%) and Sirtex Medical (66.2%) leading the sector higher. Resmed reported 2Q results that exceeded consensus expectations, driven by strong sales growth in masks and devices. Sirtex Medical outperformed significantly following Varian’s takeover offer of $28.00 cash per share.
The Telecommunications sector outperformed driven by sector heavyweight Telstra (1.1%). Telstra consolidated on its December rebound in January after having clarified the impact from the delay in the NBN roll out.
The Materials sector outperformed on the back higher commodity prices, particularly oil, although iron ore did suffer a pull-back. The key stocks driving sector outperformance were BHP (2.1%) and South32 (9.5%) which outperformed thanks to higher oil, copper and manganese prices in January. BHP also reported a decent quarterly result with its key iron ore and copper divisions performing well.
The Industrials sector underperformed the broader market, dragged lower by transportation stocks. Transurban (-3.3%), Aurizon Holdings (-5.6%) and Sydney Airport (-3.4%) were the key detractors from sector performance.
The Real Estate sector lagged the market as interest rate sensitive sectors came under pressure due to rising bond yields. Key detractors included Westfield (-3.7%), Stockland Group (-5.8%) and Mirvac Group (-6.4%).
The Utilities sector was the worst performer, also impacted by rising bond yields. Key stocks that dragged the sector lower were AGL Energy (-3.8%) and Spark Infrastructure (-8.0%).
