Market Summary | May 2020
MARKET OVERVIEW
Despite heightened volatility and ongoing uncertainty around how governments will manage the reopening of the economies globally, equity markets enjoyed a strong month as momentum continued to build.
As markets continue this remarkable comeback, many are warning against complacency given the threat of a second wave of COVID-19 infections, which could be highly disruptive to markets and forestall the ‘V’-shaped recovery investors are hoping for.
Positive economic news and unprecedented easing measures from central banks and governments have helped boost confidence, but further negative news from companies could see some bearish sentiment return.
UNITED STATES
There are early signs that the US economy is bouncing back, but there’s a long road ahead. Easing of some restrictions led to a pick-up in in those sectors hit hardest by the virus, including leisure and hospitality, construction, and retail. While 2.5 million jobs were added in May – far better than the expected loss of 7.7 million – this only begins to make up for the 20.7 million jobs lost in April when lockdown measures were in full effect.
US shares were boosted by mega-cap names like Apple (+9.8%) and Facebook (+10.0%), as concerns around valuations re-emerged. Of course, some companies have benefited from the change in work arrangements globally. Online video conferencing provider Zoom (+32.8%) saw a jump in revenue of 169% to US $328.2 million and doubled its revenue guidance for the year.
The S&P 500 Index (USD) returned 4.53%
The Dow Jones (USD) returned 4.26%
ASIA
Amid rising diplomatic tensions, China warned its citizens not to travel to Australia, citing a “significant increase” in racist attacks, which the Australian government described as an “unhelpful statement”.
US-China tensions re-emerged, this time over Beijing’s introduction of national security laws in Hong Kong. President Trump responded by saying he would remove some policy agreements with Hong Kong, including an extradition treaty, commercial relations and export controls. Chinese exports and imports both fell in May due to the COVID-19 pandemic, with exports down 3.3% and imports down 16.7% on the previous year, resulting in a rise in the trade surplus of US $62.9 billion.
The Hong Kong Hang Seng PR Index (HKD) returned -6.83%
The Nikkei 225 PR Index (JPY) returned 8.34%
The Shanghai Shenzhen 300 PR Index (RMB) returned -1.16%
EUROPE
Across Europe, COVID-19 restrictions are slowly being lifted as governments attempt to strike the right balance to avert the worst of the economic effects. Schools, restaurants, hospitals and hotels are gradually reopening in many countries, and Germany is even set to remove its travel restrictions for 31 countries on 15 June.
In the UK, Prime Minister Johnson announced that up to six people are able to meet outside, while secondary schools in England will reopen from 15 June, although with only a quarter of students allowed at school at any one time. On the data front, the unemployment rate in the eurozone rose less than expected, from a prior revised 7.1% to 7.3% in April (versus 8.2% expected).
The UK’s FTSE 100 PR Index (GBP) returned 2.97%
The German Dax (EUR) returned 6.68%
AUSTRALIA
GDP for the March quarter showed the economy contracted for the first time since 2011, falling by 0.3% as expected, with the yearly rate falling to 1.4%. The result captured the beginning of the effects from the coronavirus-driven restrictions, with household consumption falling for the first time in 32 years, down 1.1%, while both private and public investment also declined.
The Reserve Bank of Australia kept interest rates unchanged at its June meeting. The cash rate remains at a record low of 0.25%, in line with the board’s rhetoric that rates will remain unchanged until progress is being made towards full employment.
Australian shares were able to maintain momentum through May, posting a return of 4.4%. In the first week of May the ASX 200 Index briefly reclaimed the 6,000 mark but wasn’t quite able to hold it. While confidence returned, investors were still coming to grips with the disruption caused to several sectors, with consumer facing and export-reliant businesses the hardest hit by the pandemic.
The A-REIT sector came back strongly in May, extending April’s gains but still down nearly 40% on February’s high in price terms. Investors took heart from earnings and distribution guidance from major companies like Goodman Group (+16.9%) and Charter Hall (+26.7%), with growing confidence that the sector can weather the storm.
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.