Stock Market Wrap-up – July 2021

Australian Cash & Fixed Interest — Review

Short-term interest rates have remained very low, and the 90-day bank bill yield continues to trade at just above zero. Bond yields, on the other hand, have dropped, following the lead of the U.S. market, and the local 10-year Commonwealth bond yield is now 1.21%. The Australian dollar has weakened, and year to date it is now down 3.2% in overall trade-weighted value.


Australian & International Property — Review

At least until the latest COVID-19 outbreaks, business conditions had been robust in Australia, and the A-REITs had been doing well. Even after the latest volatility, investors are still ahead, and year to date the S&P/ASX 200 A-REITs Index is up 5.8% in capital value and has returned 8.0%, including dividends.

Global listed property has been strong overall, but with marked regional variation. The FTSE EPRA/NAREIT Global Index in U.S. dollars is up by 14.5% in capital value and has delivered a total return of 16.7%. As with the wider global equity market, however, the outcome has been heavily influenced by the U.S., where the REITs have returned 27.4%–excluding the U.S., global REITs have returned 6.7%. Also mirroring the global trend, emerging markets have been less able to cope with COVID-19 than their developed counterparts, and emerging-markets REITs have returned a loss of 5.3%.


Australasian Equities — Review

Australian shares have done well year to date: The S&P/ASX 200 Index up is by 10.1% in capital value and has returned 12.0% including dividends. The banks have done their bit, with the financials (excluding the A-REITs) up 16.2%. Two other prime beneficiaries of the sharp rebound from COVID-19 have also performed strongly: the miners, which have ridden the coattails of global recovery to a 10.7% gain, and consumer discretionary stocks, which have benefited from post-lockdown spending and are up 18.0%. Investor focus on cyclically sensitive winners has meant that growth sectors like IT have lagged, and IT shares are down 5.2% (though still up 25.8% on a year ago).


International Fixed Interest — Review

July’s volatility brought increased demand for bonds as investors looked for safer-haven assets against the risks of the Delta variant of COVID-19. In the U.S., for example, the yield on the 10-year Treasury note dropped to just below 1.2% on July 19, the day of maximum investor anxiety. As anxiety has receded, the yield has started to move back up again and is now just below 1.3%. The latest moves have not done much to affect the year-to-date performance of bonds, which mainly has been driven by the rise in bond yields and associated capital losses, which occurred in the March quarter. Year to date the Bloomberg Barclays Global Aggregate Bond Index in U.S. dollars is down 2.5%, with global government bonds down 3.7% and global corporate bonds, better protected by their higher yield, down by 1.0%.


International Equities — Review

At time of writing, equity markets were volatile. Investors became more concerned about the potential impact of COVID-19 and the scope for the new and more infectious Delta strain to lead to a new surge in cases, with the human and economic costs. Monday, July 19, was a difficult day: In the U.S. the S&P 500 dropped by 1.6%, and globally the MSCI World Index in U.S. dollars also dropped by 1.6%. Within the overall share weakness, investors were moving back into the more defensive companies, such as supermarkets, which had done well during the first round of COVID-19 disruption, and away from the most cyclically exposed companies, such as airlines. At time of writing, however, shares had bounced back, with the S&P 500 gaining 1.5% and world shares gaining 1.0%, and investors were buying back the COVID-19-sensitive sectors sold the previous day.

The net effect is that world shares are still well ahead for the year, with the MSCI World up 11.7%. Performance in the developed economies continues to be dominated by the U.S. market, where the S&P 500 is up by 15.1% and the Nasdaq by 12.5%–excluding the U.S., world shares are up by 5.8%, with European shares doing well (FTSE Eurofirst300 Index up 12.2%), but Japanese shares lagging (Nikkei down 0.2% in yen, and the yen down 6.0% against the USD). Emerging markets are up by only 1.5% year to date, with a small loss for the core BRIC–Brazil, Russia, India, China—bloc, which is down by 1.7%. While India and Russia have done well (MSCI India is up 11.1%, MSCI Russia is up 11.0%), Brazil has been quiet (MSCI Brazil is up 2.0%) and Chinese shares have been weak (MSCI China is down by 6.2%).


Source: Morningstar Australasia Pty Ltd

Performance periods unless otherwise stated generally refer to periods ended July 20, 2021.