Stock Market Wrap-up – September 2020

The S&P/ASX 200 Accumulation Index returned -3.7% during the month. Australian equities lagged most developed markets during the month, as most markets took a breather in September. In major global developed markets Japan’s Nikkei 225 was up 2.3%, the UK’s FTSE 100 was down 1.5%, the DJ Euro Stoxx 50 was down 2.3% and the US S&P 500 was down 3.8%.

Cyclical sectors underperformed due to concerns that the global recovery could stall without further stimulus. A surge in COVID-19 cases in Europe and fears of a rising wave in the US also drove risk-off sentiment. Despite value outperforming growth globally, the value style underperformed growth in Australia during September. The underperformance of value in Australia was largely attributable to weakness in the financial and energy sectors.

The Reserve Bank of Australia (RBA) reaffirmed its commitment to support the financial system through a historically low cash rate of 0.25% and yield curve control to keep 3-year bonds at 0.25%. The RBA’s Term Funding Facility has been extended in both size and duration. These measures are intended to keep funding costs low and sustain credit availability.

Domestic economic data releases were mixed in September. Employment rose by 111,000 positions in August, exceeding market expectations. The unemployment rate declined to 6.8%, which was also better than expected. Q2 GDP slumped -7.0%, sending Australia into its first recession since 1991. The NAB Survey of Business Conditions fell in August to -6 points, with business confidence remaining weak at -8. Retail sales were up 3.2% in July. National CoreLogic dwelling prices continued to fall in September, ending the month down 0.1%.

Sector returns were mostly negative in September. The best performing sectors were healthcare (0.9%), industrials (-0.3%) and real estate (-1.8%). These were followed by communication services (-2.2%), consumer discretionary (-2.6%), materials (-2.9%) and utilities (-3.3%), which also outperformed the broader market. Sectors that lagged included financials (-6.1%), consumer staples (-6.6%) and information technology (-6.8%). Energy (-11.1%) was the worst performing sector.

Healthcare was the top performing sector, and the only sector to post positive returns, as thoughts start to focus heavily on potential COVID-19 vaccine winners. Sonic Healthcare (5.1%), CSL (0.86%) and Cochlear (3.4%) were the key contributors to performance.

The industrial sector also outperformed during September. Transurban Group (4.8%), Sydney Airport (2.4%) and Qantas were the key drivers of sector performance as these names benefited from the move closer to travel restrictions easing.

The real estate sector also outperformed the broader market, despite the challenges of COVID-19. The key contributor was Mirvac (3.3%).

The consumer staples sector lagged the broader market. It was dragged into negative territory by Woolworths (-7.4%) and the A2 Milk Company (-17.4%), which fell following a profit warning.

The information technology sector ended its recent outperformance, following the lead of global IT stocks. Afterpay (-12.5%) finally ended its stellar run to post negative returns, while Computershare (-8.1%) and Wisetech Global (-8.4%) also underperformed.

The energy sector was the worst performer in September as oil prices fell during the month. Sector heavyweights Origin Energy (-21.4%), Woodside Petroleum (-10.2%) and Santos (-13.9%) were the main detractors.

Source: Brad Potter – Head of Australian Equities – Nikko AM