Stock Market Wrap-up – June 2019

The S&P/ASX 200 Accumulation Index returned 3.7% during the month. Global equity markets rebounded in June following the sharp sell-off in May, with the Australian market lagging slightly. Developed markets marginally outperformed emerging markets. In major global developed markets, the S&P 500 was up 7.0% and the DJ Euro Stoxx 50 was up 6.0%. The UK’s FTSE 100 returned 4.0% while Japan’s Nikkei 225 was up 3.5%.

The cash rate was cut by 0.25% in June to 1.25%. The Reserve Bank of Australia (RBA) noted that its decision was “to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target”. The RBA followed up this cut with a further 0.25% cut at its July meeting.

The latest domestic economic data releases were mixed in June. Employment growth rose a larger-than-expected 42,300 positions in May, while the unemployment rate remained steady at 5.2%. The NAB Business Conditions index weakened by 2 points, falling to +1 in May. In contrast, Business Confidence jumped to +7 in May from a zero reading the month prior. National CoreLogic dwelling prices continued their fall, down 0.2% in June. This sees the year-on-year decline at -6.9%. Retail sales fell short of consensus expectations, to be down 0.1% in April.

In company specific news, Vocus Group was down 28.8% during the month, after AGL Energy withdrew its takeover bid, only days after the non-binding takeover offer from EQT Infrastructure fell through. Caltex downgraded guidance largely due to ongoing weakness in retail fuel margins, with refining margins also under pressure.

Sector returns were mostly positive during June. The best performing sector was Materials (6.4%). Other sectors posting positive returns included Industrials (5.4%), Healthcare (4.2%), Financials (3.5%), Real Estate (3.2%), Utilities (3.2%), Consumer Staples (3.0%), Communications (2.5%), Energy (2.1%) and Information Technology (1.0%). Only the Consumer Discretionary (-1.5%) sector posted negative returns.
The Materials sector led gains in June. A rise in iron ore prices due to ongoing supply issues and a five-year high in gold prices buoyed the sector. Strong contributions came from Newcrest Mining (17.4%) and BHP (9.0%).

The Industrials sector also outperformed, with transport infrastructure stocks benefitting from their bond proxy attributes as yields fell further. Key contributors to sector performance were Transurban Group (7.9%), Sydney Airport (11.1%) and Brambles (6.4%).

The Healthcare sector performed strongly during the month. Sector heavyweight CSL (4.6%) was the main contributor to sector performance. The stock benefitted from a flight to safety as there was no stock specific news of note.

The Consumer Discretionary sector was the worst performer, and the only one to post negative returns in June, as trading conditions remain weak. Wesfarmers (-2.4%), JB Hi-Fi (-8.1%) and Star Entertainment Group (-7.8%) were the key detractors.

The Information Technology sector lagged the market again this month. Link Administration (-16.2%) continued its underperformance from May, following a warning that earnings would be lower-than-expected. Computershare (-2.8%) also detracted from the sector.

The Energy sector also underperformed the broader market, despite higher oil prices. Key detractors included Caltex (-6.2%) and Viva Energy (-1.4%) as Caltex downgraded guidance largely due to ongoing weakness in retail fuel margins, which is an industry-wide issue. Whitehaven Coal (-6.9%) also underperformed, impacted by weaker coal prices.

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