Stock Market Wrap-up – April 2020

The S&P/ASX 200 Accumulation Index returned 8.8% during the month. Australian equities rallied along with global equity markets in April as fiscal and monetary support by governments and central banks buoyed market confidence. Global equity markets rallied hard, continuing to claw back the losses from February and March. In major global developed markets, the US S&P 500 was up 12.8%, Japan’s Nikkei 225 was up 6.7%, DJ Euro Stoxx 50 was up 5.4% and the UK’s FTSE 100 was up 3.9%.

The Reserve Bank of Australia (RBA) held the cash rate steady at 0.25% in April, after taking strong action in March. The quantitative easing measures introduced in the prior month have begun to be implemented, so far seeing the RBA buy over AUD 50 billion in bonds. This has helped stabilise bond markets. When the RBA implemented the policy they stated that they would purchase government and semi-government bonds to ensure that the 3-year bond yield remained at around 0.25%. Their activity so far has achieved this objective, with 3-year bonds ending the month exactly on the target.

Domestic economic data releases were mixed in April. Employment rose by 5,900 positions in March, above the 30,000 decline that the markets had expected. The unemployment rate was also ahead of expectations, ticking up to 5.2%. The NAB Survey of Business Conditions fell in March to -21.1points while business confidence fell to -65.6, which is the worst result on record. March retail sales were up 8.2%, led predominately by panic buying of food and other essential items. National CoreLogic dwelling prices continued to post gains, rising 0.3% in April. The annual inflation rate rose above market expectations to 2.2% in Q1 2020 from 1.8% in Q4. It was the highest inflation rate since Q3 2014 and the first time it reached the RBA target band since early 2018, reflecting the impact of drought and bushfires and early effects of COVID-19, with food prices notably jumping to a 5-1/2 year high of 3.2%.

During April the market was inundated with companies raising capital. There have been at least 35 deals announced since mid-March, raising over AUD 15 billion. The main reasons cited for raising capital was to increase liquidity or to strengthen the balance sheet. Some of the larger raisings by market value included National Australia Bank (AUD 3,500 million), Ramsay Healthcare (AUD 1,400 million), QBE Insurance (AUD 1,320 million) and Oil Search (AUD 1,160 million).

All sector returns were positive in April. The best performing sector was energy (24.9%), followed by information technology (22.5%) and consumer discretionary (15.9%). These were followed by materials (14.2%), real estate (14.2%) and industrials (12.7%) which also outperformed the broader market. Sectors that lagged included communication services (4.5%), healthcare (4.4%), financials (2.8%) and utilities (2.7%). Consumer staples (2.4%) was the worst performing sector.

The energy sector was the best performing sector during April, despite the turmoil in oil markets as continued travel bans and shutdowns suppress oil demand and oil prices turned negative during the month. Sector heavyweights Woodside Petroleum (23.3%), Santos (44.4%) and Origin Energy (26.9%) outperformed the market.

The information technology sector benefitted from positive returns. Afterpay Touch (66.0%) was the sector’s best performing stock, with the company providing an update that showed it is holding up well despite the COVID-19 crisis. Computershare (25.4%) and Xero (17.1%) also outperformed. The consumer discretionary sector rebounded from its underperformance in the previous month. Wesfarmers (10.0%), Aristocrat Leisure (19.4%) and Tabcorp (27.3%) were some of the key contributors to sector performance.

The financials sector lagged the broader market again in April, with the banks and insurers generally the worst performers while a number of diversified financials managed to outperform. Insurance Australia Group (-6.8%), Westpac (-1.3%) and ANZ Bank (-0.4%) were the key detractors.

A number of defensive sectors underperformed including the utilities sector. AGL (-1.3%) and Spark Infrastructure (-3.1%) were the key detractors.

Consumer staples were the biggest relative underperformers in April, after being the star performers in March. Metcash (-21.0%) was the worst performer following the markets disappointment at a surprise equity raising during the month. Coca-Cola Amatil (-1.8%) and United Malt Group (-3.2%) also dragged on sector performance.

Source: Brad Potter, Head of Australian Equities – Nikko Asset Management