Stock Market Wrap-up – March 2019

The S&P/ASX 200 Accumulation Index returned 0.7% in March.

Global equity markets continued their rebound during the month. Developed markets marginally outperformed emerging markets. In major global developed markets, the UK’s FTSE 100 returned 3.3% despite Brexit woes. The Euro Stoxx 50 and S&P 500 both returned 1.9%, while Japan’s Nikkei 225 was flat.

The cash rate remains unchanged at 1.50%. The Reserve Bank of Australia (RBA) has recently changed its tone, with a speech from Governor Lowe indicating that the probabilities of either a rate cut or hike appear evenly balanced.

The latest domestic economic data releases were mixed in March. Q4 GDP disappointed for the second consecutive quarter, with a weak 0.2% gain for the quarter and 2.3% for the year. Residential building approvals for January bounced back, recording a 2.5% increase. Year-on-year approvals remain in the doldrums at -28.6%. Employment rose modestly in February, adding 4,600 positions, after a very strong January. The unemployment rate nudged lower to 4.9%. The NAB Business Conditions index eased 3 points to +4 in February, while Business Confidence fell 2 points to +2. Retail sales were up 0.1% in January, an improvement on December’s fall.

In company specific news, Westpac announced a re-organisation of its wealth business. The changes will see Westpac exit its loss making financial advice business, transferring existing clients to Viridian Advisory. The remainder of BT Financial will be folded into Westpac’s Consumer and Business divisions. Wesfarmers made a conditional, non-binding, indicative proposal to acquire Lynas Corporation which was subsequently rejected by the Lynas Board.

Sector returns were mostly positive during March. The best performing sector was Real Estate (5.5%). Other sectors posting positive returns included Communications (4.0%), Consumer Staples (3.9%), Materials (3.5%), Information Technology (2.7%), Industrials (1.9%), Healthcare (1.3%), Consumer Discretionary (1.3%) and Utilities (1.3%). Financials (-2.7%) and Energy (-4.1%), were the worst performing sectors for the month and the only sectors to post negative returns.

The Real Estate sector outperformed the market in March as global bond yields rallied strongly, benefitting yield sensitive sectors. Sector heavyweights, Scentre Group (6.2%), Stockland Group (10.0%) and Goodman Group (4.3%) were the key contributors to performance.

The Communications sector also outperformed in March. Sector heavyweight Telstra (6.1%) was the key driver. The stock outperformed despite a lack of news, however there is speculation that a bullish broker report contributed to the outperformance.

The Consumer Staples sector benefitted from the market shift to defensive stocks. Woolworths (6.0%) and Coles (4.6%) were the key contributors to performance.

The Financials sector underperformed as the market began to focus on deterioration in short-term fundamentals in retail banking, driven by the ongoing effects of the Financial Services Royal Commission. The major banks were the key detractors, particularly ANZ (-7.0%), Commonwealth Bank (-4.5%) and Westpac (-3.9%).

The Energy sector was the worst performer, despite oil prices rising amid supply tightness following OPEC cuts and outages. Underperformance was driven by profit taking following recent outperformance, weakness in Australia’s east coast gas market and ongoing carbon related concerns. The key detractors were Woodside Petroleum (-4.5%) and Oil Search (-4.8%).

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