Stock Market Wrap-up – December 2018

The S&P/ASX 200 Accumulation Index returned -0.1% during December.

The turmoil seen across global markets in recent months continued into December and despite the weakness of the Australian equities market, it was the best performing major market over the month. In other major global developed markets the UK FTSE 100 and the Euro Stoxx 50 were the best performing markets returning -3.6% and -5.4% respectively. The US S&P 500 returned -9.2% trailed by Japan’s Nikkei 225, which fell 10.5%.

During the month, the Reserve Bank of Australia (RBA) maintained the cash rate at 1.50%. The RBA maintains its view that the Australian economy is performing well and that while the global economy is still expanding there are signs of a slowdown in global trade. Further progress in reducing domestic unemployment and a return to target inflation is also expected, albeit gradual.

Domestic economic data releases were mixed in December. The Australian economy grew by only 0.3% over Q3 2018. Employment rose by 37,000 positions in November (mostly in part-time positions). Meanwhile the unemployment rate rose from 5.0% to 5.1%. The NAB Survey of Business Conditions eased 2 points to +11 in November and business confidence fell 2 points to +3. Retail sales rose 0.3% in October, which was above expectations.

In stock specific news, the ACCC announced its preliminary view on the TPG-Vodafone merger application and expressed concern that the merger will lessen competition in both the mobile and fixed broadband segments. During the month APRA issued a show cause notice to IOOF, which saw the stock fall 25.1%.

Sector returns were mixed during December. The best performing sector was Materials (5.1%). Healthcare (2.7%), Utilities (2.8%), Real Estate (1.1%), Consumer Staples (1.2%) and Industrials (-0.3%) all outperformed the market. The worst performing sector for the month was Communications (-5.1%). Information Technology (-4.1%), Financials (-3.1%), Energy (-2.0%) and Consumer Discretionary (-1.9%) all underperformed.

Materials was the top performing sector during December. Sector heavy weights BHP Billiton (11.5%), Rio Tinto (7.1%) and South32 (8.1%) were the major contributors within the sector. The iron ore price rose in December, providing support for these names. BHP and Rio Tinto were also buoyed by capital management initiatives, including a special dividend for BHP and the ongoing Rio Tinto PLC buy-back. Notably smaller miners (those outside the S&P/ASX 100) underperformed the index by 5.4%.

The Healthcare sector outperformed the market during December. The key contributor was sector heavyweight CSL (4.4%) which rallied following its R&D briefing which detailed their pipeline of clinical programs.

The Utilities sector also outperformed the market during the month. AGL (9.5%) was the key contributor during December. During the month AGL announced Brett Redman as the CEO and Managing Director on a permanent basis, having been the interim CEO since August 2018.

The Communications sectors was the worst performing sector during December. Telstra (-2.7%) and Nine Entertainment (-21.4%) were the key detractors. Nine Entertainment confirmed the merger with Fairfax media was implemented during the month, with a number of cost savings already realised upon implementation.

The Information Technology sector underperformed the market during the month. Computershare (-5.3%) and Afterpay (-14.0%) were the key detractors within the sector, losing most of last month’s gains.

The Financial sector also underperformed the market. ANZ (-8.7%) and Westpac (-3.6%) were the key detractors amongst the big four banks, while Macquarie Group (-5.0%) was the key detractor within diversified financials and QBE Insurance (-10.8%) was the biggest detractor amongst the insurance sector.

Source: Brad Potter – Nikko Asset Management