Stock Market Wrap-up – April 2019

The S&P/ASX 200 Accumulation Index returned 2.4% during the month. Global equity markets continued to rally hard in April, with the Australian market a laggard amongst its developed peers. Developed markets outperformed emerging markets. In major global developed markets, the Euro Stoxx 50 was the strongest market returning 5.5%, Japan’s Nikkei 225 was up 5.0% followed by the S&P 500 at 4.0%. The UK’s FTSE 100 brought up the rear returning 2.3%.

The cash rate remained unchanged in April at 1.50%. The Reserve Bank of Australia (RBA) has shifted to a more dovish tone, noting that if inflation did not move any higher and unemployment trended up, a decrease in the cash rate would likely be appropriate.

The latest domestic economic data releases were mixed in April. The Commonwealth Budget was delivered early in the month, largely delivering on expectations, with a return to surplus forecast in 2019/20 of AUD 7.1 billion. The inflation result was lower than expected, with the Q1 headline CPI flat for the quarter. Employment growth rose a larger than expected 26,000 positions in March, but the unemployment rate ticked up to 5.0%. The NAB Business Conditions Index rebounded 3 points to +7 in March, while Business Confidence fell a further 2 points to zero. Residential building approvals for February rose a larger than expected 19.1%, with higher density approvals spiking 62%. Year-on-year approvals remain negative at -12.5%. National CoreLogic dwelling prices continued their fall, with April down 0.5%. This sees the year-on-year decline at -7.2%, the lowest since February 2009. Retail sales were up 0.8% in February, the largest monthly gain in over a year.

In company specific news, Dulux group agreed to an AUD 3.8 billion takeover by Japanese firm Nippon Paint. This saw the company’s share price rise ~32% over the month. Woolworths announced an AUD 1.7 billion off-market buyback following the sale of its Petrol division to EG Group.

Sector returns were mostly positive during April. The best performing sector was Consumer Staples (7.3%), along with Information Technology (7.3%). Other sectors posting positive returns included Consumer Discretionary (5.0%), Financials (4.4%), Industrials (2.8%), Healthcare (2.8%), Communications (2.4%) and Energy (1.5%). Materials (-2.0%) was the worst performing sector for April, with Real Estate (-1.9%) and Utilities (-0.5%) also posting negative returns.

The Consumer Staples sector was the strongest performer in April largely driven by A2 Milk (17.2%) and Treasury Wine Estates (15.2%) which both benefitted from improved growth in China. Woolworths (4.8%) was also a key driver of sector performance following its announcement of an off-market share buyback.

The Information Technology sector performed strongly locally and also globally during April. Afterpay Touch (22.1%), Xero (11.9%) and Computershare (4.4%) were the main contributors to the sector.

The Consumer Discretionary sector also outperformed the market. Sector heavyweights Aristocrat Leisure (6.4%) and Wesfarmers (3.9%) were the key contributors to performance. Aristocrat outperformed for the month as the latest industry data suggested that Aristocrat continues to take market share in US land based slot machines.

The Utilities sector underperformed the market with APA Group (-3.6%) the key driver behind the underperformance.

The strong run enjoyed by the Real Estate sector came to a halt in April with the sector being one of the worst performers during the month. Scentre Group (-7.1%) and GPT Group (-7.7%) were the largest detractors from sector performance.

The Materials sector was the largest underperformer during the month. This was due to weak returns from the miners, notably BHP (-2.8%), South32 (-10.5%) and Rio Tinto (-2.6%). Despite a small increase in iron ore prices, much of the mining sector suffered a pull back after a strong start to the calendar year.

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