Market Summary | June 2020
MARKET OVERVIEW
June was a mixed month for equity markets with Australian large cap stocks producing a positive return whilst smaller companies and international equities were negative in Australian terms. Emerging markets were the best performers off the back of strong Chinese equity market performance.
The rise in the number of COVID-19 cases globally continues to create uncertainty about the shape of the economic recovery. An important factor in coming months will be the extent to which governments continue with fiscal measures to support businesses and households. Meanwhile, tensions between the US and China remain elevated, and the outcome of the US presidential election in November remains unclear.
UNITED STATES
In the US, economic data for June saw some upside surprises as a gradual reopening of the economy clawed back job losses resulting from the lockdown. However, it is not yet clear what the longer-term impact on labour markets will be, or how many of the temporary job losses will become permanent if lockdown measures persist. The risk of a second wave of infections remains.
US equities bounced back strongly in the June quarter on the back of better than expected economic data and re-openings across the country. The S&P 500 Index rose 20.5% over the quarter and is up 7.5% over the year (in US dollar terms).
The technology and healthcare sectors led the charge, best illustrated by the performance disparity between the ‘old economy’ Dow Jones Industrial Index (+17.8%) and ‘new economy’ NASDAQ Composite Index (+30.6%).
The S&P 500 Index (USD) returned 1.84%
The Dow Jones (USD) returned 1.69%
ASIA
Economic data indicates that the world’s second-largest economy, China, is gradually recovering from the pandemic. Many economic data points highlighted the strongest growth in over a decade, as pent up demand was finally able to benefit the economy. Chinese equities had a strong month, outperforming much of the market.
The World Health Organisation (WHO) is sending a team to China to investigate the origins of the COVID19 virus. Starting in Wuhan, the virus epicentre, the team’s objective is to "advance the understanding of animal hosts of COVID-19 and ascertain how the disease jumped between animals and humans", according to the WHO.
The Hong Kong Hang Seng PR Index (HKD) returned 6.38%
The Nikkei 225 PR Index (JPY) returned 1.88%
The Shanghai Shenzhen 300 PR Index (RMB) returned 7.68%
EUROPE
As European Union nations began reopening their borders to other EU members, debate continued regarding when the borders should be reopened to non-EU countries. The European Commission, recommended that people from outside the region be allowed in if they are arriving from approved nations, where the health situation, measured by the number of COVID-19 cases per 100,000 people in the past 14 days, is equal to or lower than the EU average. This would include countries like Australia, Canada, Japan, and possibly China if Beijing decides to reciprocate, but will likely not include the United States. So potentially good news for Australian travellers who are brave enough to mix with the virus.
The UK’s FTSE 100 PR Index (GBP) returned 1.53%
The German Dax (EUR) returned 6.25%
AUSTRALIA
Australia’s relatively successful containment of the COVID-19 virus has resulted in health outcomes overall tracking better than initially estimated. This has allowed an earlier-than-expected easing in lockdown conditions, although some states are faring better than others. Businesses and households have received significant government support from the JobKeeper and JobSeeker programs, the launch of the $25,000 Homebuilder program, and other incentives by state governments.
It is apparent that many investors were ‘voting’ for a sharp rebound once the dark COVID-19 clouds cleared. The S&P/ASX 200 Index ticked past 6,000 points in early July and is once again in bull market territory.
Stocks that are leveraged to online retail activity have been standout performers during this isolation period, including Kogan, Temple & Webster, and City Chic. The past three months of hyper growth rates in online sales have been the equivalent of the past three years of cumulative growth.
Afterpay (+28.6%) announced an $800 million capital raising and co-founder sell down, while Qantas Airways (-5.3%) provided a post-COVID recovery plan, which focuses on rightsizing the workforce, along with a planned equity raising of up to $1.9 billion.
Capital raisings have been extremely prevalent in 2020, for many company’s it has been necessary to bolster solvency and near-term operational liquidity. For some other companies, it has been an opportune time to strengthen balance sheets and thus provide a layer of insurance if the economic malaise continues.
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.