Market Summary | May 2021

MARKET OVERVIEW

Delivery of vaccines continues to rise globally; Germany now reports that over 40% of the population have received at least one dose. The EU has also recommended the relaxation of travel restrictions for those fully vaccinated with an EU-approved vaccine. Increased mobility is a rising theme globally as vaccination rates rise. Australia is one exception, the initial advantage the country had in the fight against COVID has eroded somewhat due to a lagging vaccination rollout.

Key economic indicators continue to improve generally, with several leading economies beginning to report modest increases in inflation.

Economies continue to accelerate as the vaccination roll-outs hit key milestones.

United States

The United States re-opening continued in May, ending the month with 40% of the population fully vaccinated and with 50% having received at least one dose. US President Joe Biden announced a ‘month of action’, setting a goal of 70% vaccination by the July 4th Holiday.

First-quarter earnings in the United States came in generally stronger than expected. The strongest results were seen in the cyclical areas of the market. Similar to the sentiment we have seen domestically, more expensive sectors have come under pressure amid continued inflation concerns, highlighted again by the divergence between the ‘old economy’ Dow Jones Industrial Average and the ‘new economy’ Nasdaq 100, returning 2.2% and -1.7% respectively in May.

The S&P 500 Index (USD) returned 0.55%
The Dow Jones (USD) returned 1.93%

Asia

Despite progress in the vaccine roll-out and declining Covid-19 case numbers across much of the developed world, case numbers are spiking in Asia where vaccines have been slower to roll out. Concerns regarding a global re-opening have been renewed as restrictions on mobility have re-emerged. Late in May, Japan again extended the State of Emergency ahead of the Olympic Games, despite a positive period of declining case numbers.

Emerging Markets gained in May and outperformed Developed market peers, benefiting from weakness in the US Dollar. Despite elevated Covid-19 infections and among the worst hit by the pandemic, India was one of the best-performing markets in May.

The Hong Kong Hang Seng PR Index (HKD) returned 1.49%
The Nikkei 225 PR Index (JPY) returned 0.16%
The Shanghai Shenzhen 300 PR Index (RMB) returned 4.06%

Europe

The United Kingdom’s Covid-19 vaccine roll-out has continued with strong momentum, with 38% of the population fully vaccinated and 59% having received at least one dose at the end of May.

Eurozone economic sentiment increased 4.0pts to 114.5 in May, beating expectations of 112.1 and marking its highest reading since January of 2018, remaining considerably above its long-term average of 100.0 and above pre-pandemic levels.

The UK’s FTSE 100 PR Index (GBP) returned 0.76%
The German Dax (EUR) returned 1.88%

Australia

As widely expected, following its June meeting, the RBA left the cash rate unchanged at a record low of 0.1%. Policymakers reaffirmed their commitment to maintaining highly supportive monetary conditions until at least 2024 when actual inflation is expected to be within the 2-3% target. First-quarter GDP came in at 1.8% quarter on quarter, beating market expectations of 1.5%. It was a third consecutive quarter of economic growth, driven by continued growth in household consumption and private investment.

May saw a continuation of the broad cyclical value rotation we have experienced over the last few months, with the Financials and Consumer Discretionary sectors among the strongest over the month.

Index heavyweight CBA released its 3Q21 trading update in May, highlighting unaudited Cash NPAT of approximately 2.4 billion during the quarter, an increase of 24% on the 1H21 quarterly average. Loan impairment expenses were significantly lower in the quarter, with the company citing an improved economic outlook resulting in a reduction in collective provisioning levels.

In a reversal of April’s gains, Information Technology fell -9.9%, led by Afterpay (down 21% over the month and off 38% from recent highs) despite little stock specific news. Growth names generally have come under pressure in recent months, as upbeat indications of normalising economic activity lead investors into the cyclical value pockets of the market.

Market Returns (last 12 Months)

Over the last 12 months Australian Equities have outperformed international equities largely due to an appreciating Australian Dollar which has hindered global returns.

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.

*Source: Lonsec Research Pty Ltd