Market Summary | April 2020
MARKET OVERVIEW
The world economy remains in the grip of the COVID19 shock. Governments are deploying stimulus measures, including extensive employment subsidies to retain worker-firm relationships.
March quarter economic growth points to a sharp downturn globally, while the contraction could be more pronounced in the June quarter given lockdown measures were in full force in most regions by April.
Fortunately, April brought some recovery in equity markets as investors found the confidence to leap back in to risk assets as they found re-assurance in the stimulus measures.
UNITED STATES
In the US, March quarter GDP plummeted to an annualised 4.8% contraction, below expectations of a 3.7% fall, as the initial impact of COVID-19 filtered through the economy. Estimates of the impact of the shutdowns and isolation initiatives on GDP centred around 7–10% in the June quarter alone. To put this in context, the 2008 recession saw a 4% contraction in US GDP over six quarters, while the 1929-30 depression saw a 26% contraction.
April’s Employment Report showed 20.2 million jobs were lost over the month – the largest decline ever in employment. The services sector was the hardest hit, shedding 16 million jobs, mostly in leisure and hospitality.
Based on broadly accepted measures, the US equity market has endured a bear market and a bull market in the space of two months. In price terms, the S&P 500 declined 34% from February’s record high to its trough on 23 March, before rallying 32% to the end of April. Simply astounding.
The S&P 500 Index (USD) returned 12.68%
The Dow Jones (USD) returned 11.08%
ASIA
The Chinese economy contracted by 9.8% in the March quarter, taking the annual growth rate to -6.8%, down from the growth rate of +6.0% recorded only 3 months earlier. According to the IMF, growth is forecast to recover, but only to 1.2% for the whole of 2020.
China was the first economy to be hit by the coronavirus, and after a lockdown lasting more than two months, the economy is beginning to open, although at neighbourhood-level. The economy is estimated to be running at around 80% capacity, and while many restrictions have been eased, others have been tightened, including restrictions on international flights, in a bid to prevent a second wave of imported infections.
The Hong Kong Hang Seng PR Index (HKD) returned 4.41%
The Nikkei 225 PR Index (JPY) returned 6.75%
The Shanghai Shenzhen 300 PR Index (RMB) returned 6.14%
EUROPE
Even before the pandemic hit, the eurozone story was one of mediocre economic growth, with a modest expansion in the services sector been offset by a contraction in manufacturing. The coronavirus pandemic undercuts even this lacklustre narrative by hitting services extremely hard.
The preliminary estimate shows eurozone GDP down 3.8% year-on-year, the sharpest decline observed since the series started in 1995.
Since the end of March, the ECB has been buying assets as part of the new Pandemic Emergency Purchase Programme (PEPP), which allows the ECB to make up to €750 billion of purchases across all asset classes. This will be augmented by additional long-term refinancing operations to support liquidity across the eurozone.
The UK’s FTSE 100 PR Index (GBP) returned 4.04%
The German Dax (EUR) returned 9.32%
AUSTRALIA
The Australian economy is expected to contract by at least 5% in the June quarter after a smaller contraction in the March quarter, thereby meeting the technical definition of a recession. However, no data is needed to confirm what has already been observed: shutdowns, isolation, and social distancing measures in the fight against the spread of COVID-19 have virtually closed large sections of the economy, causing a surge in unemployment not seen since the Great Depression.
The good news is that the lockdown measures appear to have been effective, and in early May attention turned to re-starting the economy and putting in place the measures and safeguards required to avoid a second wave of infections.
Over half of ASX 200 companies have downgraded or withdrawn earnings guidance due to the lack of visibility in assessing the extent and severity of the COVID-19 outbreak. Dividends for banks, property and infrastructure shares are expected to decline as companies attempt to counter demand shocks through rapid cash conservation measures, while capital raisings have intensified as businesses move to strengthen balance sheets.
Despite the negative economic data, the ASX 200 rallied 8.78% throughout April recovering some of the losses from earlier months. The IT sector bounced back strongly, with key stocks AfterPay (+66.0%) and Appen (+31.2%) returning to their pre-outbreak levels.
MARKET RETURNS (LAST 12 MONTHS)
Recent performance has pushed the return of International equities ahead of Australian equities. Performance from international equities remains in positive territory (mainly due to currency gains), whilst local equities are negative. Returns from Cash remain somewhat suppressed.
The above graph summarises the performance of the major financial markets and gives you an indication of how these markets performed over the last 12 months. The graph does not reflect your actual portfolio performance.