Stock Market Wrap-up – September 2019

The S&P/ASX 200 Accumulation Index returned 1.8% during the month. Global equity markets rallied in September, with Australian equities lagging major developed markets during the month. September also marked the second largest monthly outperformance of value versus growth in the past decade. Globally equity markets were strong across the board, with developed markets outperforming emerging markets. In major global developed markets, Japan’s Nikkei 225 was up 5.8% followed by the DJ Euro Stoxx 50, which was up 4.3%, and the UK’s FTSE 100, which returned 3.2%. The S&P 500 returned 1.9% during September.

The Reserve Bank of Australia (RBA) maintained the cash rate at the record low level of 1.00%. The RBA were materially more dovish than expected and noted they “would ease monetary policy further if needed”. The RBA acted on these comments by cutting the cash rate by 0.25% to a new record low of 0.75% at the 1 October meeting.

Domestic economic data releases were mixed in September. Employment growth rose a higher than expected 34,700 positions in August, albeit the unemployment rate edged up to 5.3%. Retail sales missed expectations, ticking down 0.1% in July. The NAB Business Conditions index fell by 2 points to +1 in August. Similarly, Business Confidence fell to +1 from +4. National CoreLogic dwelling prices continued to rise, increasing 0.09% in September, with strong gains in Sydney and Melbourne. Q2 GDP held steady at 0.5%, with the annual rate softening to 1.4%.

In company specific news, Nufarm surged 51% after the company announced a deal to sell its South American business to Sumitomo Chemical for AUD 1.18 billion. IOOF was up 26% in the month helped by the Federal Court decision brought by the regulator, APRA, going in favour of IOOF. Costs were also awarded to IOOF. Sims Metal Management fell 9.5% during September after a trading update citing headwinds in ferrous and non-ferrous pricing, as well as higher shipping rates.

Sector returns were mixed in September. The best performing sector was Energy (4.7%) which was followed by Financials (4.1%), Materials (3.1%), Consumer Discretionary (3.0%), Utilities (1.8%), Consumer Staples (1.7%) and Industrials (0.0%). Information Technology (-0.6%), Real Estate (-2.3%) and Healthcare (-2.5%) all posted negative returns. Communication Services (-2.9%) was the worst performing sector for the month.

The Energy sector was the strongest performer this month, with the sector being one of the key drivers of the ‘value’ uplift. Sector heavyweight Oil Search (11.5%) was the largest contributor to the sector seeing some benefit from the drone attacks on Saudi Arabia’s largest oil field, along with Santos (7.2%) and Caltex (11.3%).

The Financial sector rebounded in September following a disappointing results month in August. Key drivers of the outperformance were the ‘big four’; National Australia Bank (8.6%), ANZ Bank (6.7%), Westpac (5.0%) and Commonwealth Bank (2.3%).

The Materials sector also outperformed the broader market with BHP (4.4%), Rio Tinto (5.8%) and Fortescue Metals Group (13.4%) the top contributors to the sector. Fortescue benefitted from raising USD 600 million through a new high-yield bond. The debt restructure extended the maturity of Fortescue’s debt profile and reduced the maximum debt repayable in any one year to USD 750 million.

The Real Estate sector underperformed along with other defensive sectors this month. Key detractors to performance were Dexus (-7.5%), Scentre Group (-2.7%) and Mirvac (-4.1%).

Healthcare underperformed the broader market due to the rotation away from growth and defensive assets. Sector heavyweight CSL (-2.4%) was the main detractor.

The worst performing sector was Communication Services, which was weighed down by sector heavyweight Telstra (-5.6%).

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