Stock Market Wrap-up – July 2020

Australian Cash & Fixed Interest

Short-term interest rates have remained very low, reflecting the target cash rate being held at 0.25% by the Reserve Bank of Australia–the 90-day bank-bill yield is only 0.1%. Bond yields also remain very low by historical standards; although the 10-year Commonwealth-bond yield is up from its COVID-19 low (0.62% on March 9), it is still below 1% (currently 0.88%). The Australian dollar has been rising in value in recent months and has now recovered the ground lost earlier in the year–it is up 0.7% in overall trade-weighted value year to date.


Australian & International Property

Australian-listed property has been weak and has underperformed the wider equity market. Year to date the S&P/ASX 200 A-REITs Index is down 22.2% in capital value and down 20.6% including the value of dividend distributions.

The same is true of global-listed property. Year to date the FTSE EPRA/NAREIT Global Index in U.S. dollars is down 20.7% in capital value, substantially shy of the much smaller 2.7% capital loss for the MSCI World Index. All the major regions were under pressure, with the eurozone faring a bit better than most (down 16.3%), and the U.K., which has had difficulty controlling the virus, down more than most with a loss of 28.1%.


Australasian Equities

Like many other equity markets, Australian shares have continued to recover from their earlier COVID-19 sell-off, but the bulk of the recovery took place in April through to early June and there has been little subsequent net movement in recent weeks. The recovery has not been robust enough to gain back the earlier COVID-19 losses, and year to date the S&P/ASX200 Index is still down 9.7% in capital value (down 8.4% after including dividend income). The large weight of the financials continues to drag on the overall outcome, with the sector down 18.4%; on the plus side, the star sectors have been IT (up 16.4%) and consumer staples (up 6.9%). Against a background of a severe shock to world trade, the miners have done better than many might have expected and are
up 6.1% year to date.


International Fixed Interest

Once again bonds have acted to protect portfolios through the difficult COVID-19 conditions. Year to date the Bloomberg Barclays Global Aggregate Index in U.S. dollars is up 4.1%. As in the equity markets, investors have had to be fully exposed to the U.S. market to reap all the benefits—ex the U.S. index was up by a smaller 1.9%. The higher-risk end of the market continues to underperform, with the Bloomberg Barclays Index of global high-yield (low-credit quality) bonds down by 2.7%. Emerging-markets bonds have lagged the developed economies, but they are at least now slightly in the black for the year with the Bloomberg Barclays Emerging Markets Index up 0.9%.


International Equities

World equities have continued to regain the ground lost after the outbreak of COVID-19, though most of the recovery occurred in April and May and progress has been more limited through June and July. Year to date the MSCI World Index of developed markets is now down by only 2.7%. Performance continues to be heavily dependent on the U.S. market, where the S&P 500 is now all square for the year (down -0.2%) and Nasdaq is up by a remarkable 17.1%. Ex the U.S., the MSCI World Index is down 9.2%. Europe has been the weakest of the major markets, with the FTSE100 in the U.K. down 16.6% (in GBP) and the CAC40 Index in France down 15.2% (in euros).

Emerging markets have continued to underperform the developed economies, with the MSCI Emerging Markets Index in U.S. dollars down 5.3%. Many investors will, however, be focused within the overall asset class on the core BRIC—Brazil, Russia, India, China—economies, which have slightly outpaced the developed economies year to date, with a 1.7% loss. A 15% surge in Chinese share in early July helped the BRIC outcome, with the other three members still showing significant year-to-date losses.


Source: Morningstar Australasia Pty Ltd

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