Stock Market Wrap-up – November 2019

The S&P/ASX 200 Accumulation Index returned 3.3% during the month. Australian equities posted solid returns during November, as global equity markets recorded broadly positive returns during the month. Emerging markets were also positive but underperformed developed markets. In major global developed markets, the S&P 500 was up 3.6%, the DJ Euro Stoxx 50 was up 2.8% while the UK’s FTSE 100 was up 1.8%. Japan’s Nikkei 225 was the laggard, up 1.6%.

The Reserve Bank of Australia (RBA) left the cash rate unchanged at the record low of 0.75% at the November meeting. The RBA reiterated that they would ease monetary policy further if needed “to support sustainable growth in the economy, full employment and the achievement of the inflation target over time”.

Domestic economic data releases were mixed in November. Employment fell by 19,000 positions in October, which was well below expectations. The unemployment rate edged back up to 5.3%. Retail sales also missed expectations, recording a 0.2% gain in September. The NAB Business Conditions Index rose by 1 point to +3 in October while Business Confidence also rose to +2 from 0. National CoreLogic dwelling prices continued to rise, increasing 1.5% in November, the fifth consecutive month of gains.

In company specific news, Caltex (26.7%) was sharply higher following a non-binding indicative conditional takeover offer from Canadian-based Alimentation Couche-Tard. Westpac (-10.5%) plunged following allegations from AUSTRAC regarding contraventions of the Anti-Money Laundering and Counter Terrorism Finance Act 2006. By month end, Westpac’s CEO, Brian Hartzer, announced he would be stepping down following intense public and political pressure and the Chairman also brought forward his retirement to 2020.

Sector returns were mixed in November. The best performing sector was Information Technology (11.0%), which was followed by Healthcare (8.9%) and Consumer Staples (8.3%). Communication Services (7.5%), Energy (7.5%), Consumer Discretionary (4.9%), Materials (4.7%) and Industrials (4.1%) were also positive. The worst performing sectors were Real Estate (2.4%), Utilities (-0.6%) and Financials (-2.1%).

Information Technology was the best performing sector in November, led by Xero (17.8%), Computershare (11.9%) and Afterpay Touch (9.5%). Xero’s 1H20 result was largely in line with consensus, however the highlight was strong subscriber growth domestically, following the launch of mandatory Single Touch Payroll for employers with greater than five staff.

The Healthcare sector was also a strong performer this month. Sector heavyweight CSL (10.7%), Cochlear (10.6%) and Ramsay Health Care (6.6%) were the key drivers of outperformance.

The Consumer Staples sector also outperformed. Key contributors included Woolworths (6.5%), a2 Milk (22.7%) and Coles (8.5%). a2 Milk’s AGM update provided upgraded EBITDA margin guidance which was well received by the market.

The Real Estate sector underperformed the broader market as yield sensitive stocks suffered as the yield curve steepened. Stocks that detracted from sector performance included Charter Hall (-4.3%), Cromwell Property (-7.5%) and Viva Energy REIT (-3.5%).

The Utilities sector also underperformed given its yield sensitivity. Key detractors included APA Group (-5.6%) and AusNet Services (-3.2%). APA underperformed after the Council of Australian Governments (COAG) published its Regulatory Impact Statement on gas pipelines, which was broader in scope than just tinkering with the existing framework.

The Financials sector was the worst performer during the month. Key drivers of the underperformance were Westpac (-10.5%), National Australia Bank (-6.8%) and ANZ Bank (-4.2%). The banks were impacted by a number of factors, including softer profit results from NAB and ANZ, the prospect of further capital raisings by the major banks, and the AUSTRAC civil proceedings against Westpac which further damaged sentiment towards the sector.

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