Stock Market Wrap-up – January 2020

The S&P/ASX 200 Accumulation Index returned 5.0% during the month. Australian equities significantly outperformed global equity markets in January, as the coronavirus weighed on global sentiment. Emerging markets underperformed developed markets, dragged down by China, which was particularly hard hit being at the epicentre of the virus. In major global developed markets, the S&P 500 was flat, Japan’s Nikkei 225 was down 1.9%, the DJ Euro Stoxx 50 was down 2.6% and the UK’s FTSE 100 was down 3.4%

Domestic economic data releases were mixed in January. On the inflation front, the Consumer Price Index rose 0.7% during the fourth quarter, while the annual rate ticked up to 1.8%. Both results were marginally above consensus. Employment rose by 28,900 positions in December which exceeded expectations. The unemployment rate edged lower from 5.2% to 5.1%. The NAB Survey of Business Conditions fell in December to +2.7 points and business confidence turned negative, falling from 0 to -1.9, the lowest level since July 2013. November retail sales were up 0.9%, beating market expectations. National CoreLogic dwelling prices continued to post gains, rising 1.0% in January.

In company news, a number of stocks were hit hard by fears over the coronavirus, including Qantas (-9.8%) and Flight Centre (-10.8%). Pre-reporting season downgrades also impacted a range of stocks. Downer (-9.3%) lowered its earnings guidance due to underperformance in its Engineering, Construction & Maintenance division, as well as mining project commencement delays. Treasury Wine Estates (-19.8%) also downgraded guidance, due to both execution and market issues in the US.

All sector returns were positive in January. The best performing sector was health care (12.0%), followed by information technology (11.1%) and consumer staples (8.2%). These were closely followed by communication services (8.1%) and real estate (6.1%) which also outperformed the broader market. Sectors that lagged included financials (4.7%), consumer discretionary (4.6%), industrials (2.0%), materials (1.8%) and energy (0.7%). The worst performing sector was utilities (0.6%).

The health care sector surged in January, thanks to outperformance from CSL (13.2%), Sonic Healthcare (10.2%) and ResMed (14.4%). The sector benefitted from the rush to defensive, quality, growth stocks.

Information technology also outperformed strongly. Key contributors included Afterpay (31.7%), Computershare (7.2%) and Altium (14.7%).

The consumer staples sector bounced back from its underperformance in December. Key drivers of the outperformance included Woolworths (15.7%) and Coles (11.5%). Food price inflation following the drought, bushfires and the decision by Kaufland to cancel its Australian expansion plans aided supermarket performance during the month.

In a reversal of fortune from December, materials were a laggard in January as global risk off sentiment took its toll on commodities. Key detractors included Newcrest Mining (-2.4%), Rio Tinto (-1.6%) and BlueScope Steel (-5.4%).

The energy sector also underperformed the broader market due to the sharp fall in oil prices. Key detractors included Origin Energy (-3.0%) and Viva Energy (-10.4%). Viva Energy underperformed as a result of deteriorating regional refining margins, while Origin Energy was impacted by softening electricity prices.

The utilities sector was the worst performer locally this month, in contrast to the sector being the best performing sector globally as investors sought refuge in defensive stocks. AGL Energy (-2.8%) was the key detractor, while APA Group (2.1%) was also a laggard.

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