Market Summary | July 2020

MARKET OVERVIEW

July was a modest month for equity markets as positive returns were enjoyed in many markets globally. Emerging markets led by China, were the stand-out performer as the country leads the economic recovery globally.

Hopes of a V-shaped recovery faded as COVID-19 cases worldwide ticked over 15 million, although policy settings remain incredibly favourable as central banks and governments support economies via monetary easing and fiscal measures.

UNITED STATES

The impact of COVID-19 has caused US GDP to shrink by an annualised 32.9% in the June quarter (-9.5% quarter-on-quarter), slightly better than the expected
34.1% fall.

Congressional Democrats and White House officials remain at odds over further stimulus packages, prompting President Trump to sign a measure to provide an additional $400 per week, to workers displaced due to the virus.

With around half of S&P 500 companies having reported at the time of writing, it is clear earnings have been severely affected by the pandemic, although not as badly as anticipated. The US share market has been supported by the ‘big four’ technology giants (Amazon, Apple, Facebook, and Google), all of which beat estimates.

Amazon (+14.7%) was arguably the biggest winner, reporting the largest quarterly net profit in its history, nearly double that of the corresponding quarter in 2019. Apple (+16.5%) reported revenue of US$59.7 billion, above estimates of US$52.2 billion, while every major product line saw year-on-year growth and beat analyst expectations.

The S&P 500 Index (USD) returned 5.51%
The Dow Jones (USD) returned 2.38%

ASIA

China’s June quarter GDP came in above expectations, with the yearly rate increasing to 3.2% (2.5% expected), following a -6.8% reading in the previous quarter. China is the first country to report growth since the beginning of the pandemic. This supported strong gains in the local equity markets which were a standout in July globally.

China/US relations took a further tumble in July as President Trump set out to ban TikTok (a Chinese social media application) from operating within the USA. The app is believed to pose significant data security threats as there no barriers from stopping the Chinese communist party from accessing the data. Microsoft are attempting to salvage a deal to buy TikTok’s US operations.

The Hong Kong Hang Seng PR Index (HKD) returned 0.69%
The Nikkei 225 PR Index (JPY) returned -2.50%
The Shanghai Shenzhen 300 PR Index (RMB) returned 12.75%

EUROPE

The flash estimate for Eurozone June quarter GDP came in as expected, falling 12.1%, making it the largest contraction on record as lockdowns continued to impact global demand.

Europe is under threat from a second wave of Covid-19 infections, with the French government describing the situation as “under control but fragile”, while Britain’s health secretary said, “I think you can see a second wave starting to roll across Europe, and we've got to do everything we can to prevent it from reaching these shores.” In signs of lockdown fatigue, around 17,000 people marched through the streets of Berlin to protest restrictions, while EasyJet announced it would schedule additional flights to meet better than expected demand during the European summer.

The UK’s FTSE 100 PR Index (GBP) returned -4.41%
The German Dax (EUR) returned 0.02%

AUSTRALIA

The Australian government warned that the economy likely shrunk at its fastest pace in recorded history in the June quarter, while the budget deficit will be the biggest since World War II as payments were extended to businesses and job seekers. The prime minister said the harsher lockdowns in Victoria would reduce GDP by between $7 billion and $9 billion in the September quarter, while the total hit to GDP is forecast to be around $12 billion.

At its August meeting, the RBA left interest rates on hold and maintained its target for the 3-year yield curve at 0.25%. In his statement, Governor Lowe said the worst of the contraction has passed, but the outlook remains highly uncertain, especially given Victoria’s move to stage four lockdowns.

Despite the negative economic information coming to light, forward looking equity markets continued their recovery as the S&P/ASX 200 Index gained 0.5% over the month.

Materials performed well over the month, a strong beneficiary of the demand from the Chinese recovery. Strong returns were seen from both Fortescue Metals Group (+25.7%) and Oz Minerals (+24.4%).

Wesfarmers (+3.8%) gave a Covid-19 update following Victoria’s lockdown announcement: all the group’s retail businesses will continue online operations through home delivery and contact-less click and collect, while Bunnings will remain open for trade customers only. In FY20, Wesfarmers derived approximately 17% of retail sales from stores within metro Melbourne.

MARKET RETURNS (LAST 12 MONTHS)

International Equities have significantly outperformed domestic equities over the last 12 months largely driven by advancing technology companies which have been a big beneficiary of the COVID-19 environment.

Returns on cash and fixed income remain subdued.

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.