Market Summary | September 2020

MARKET OVERVIEW

Australian shares followed global markets down through September as the focus shifted to the uncertain path of recovery and the ongoing public health risks due to the pandemic.

The global recovery continues to progress as economies gradually emerge from lockdown, however, significant uncertainty remains about the possible path the pandemic could take and the timeline for vaccines to be made available to the public.

UNITED STATES

In the US, the S&P 500 Index fell 3.92% in US dollar terms as the air was taken out of extended valuations. The Nasdaq Composite Index dropped 5.1% following an incredible rally, and markets seemed to be in a range-trading pattern.

Recent data suggests the US recovery lost some steam in September with key releases falling short of expectations. Nonfarm payrolls disappointed, with 661,000 jobs added, well short of the consensus 859,000. The unemployment rate fell from 8.4% to 7.9%, although this was partially due to the fall in the participation rate from 61.7% to 61.4%.

The presidential race is fuelling uncertainty, with polls still pointing to a Biden victory. Days after a fiery debate between President Trump and Vice President Biden, Trump was rushed to Walter Reed hospital after contracting COVID-19, only adding to the sense of drama.

The S&P 500 Index (USD) returned -3.92%
The Dow Jones (USD) returned -2.28%

ASIA

China’s recovery is well underway, although consumers remain cautious and there is still potential for further outbreaks. The Australian government forecasts China’s growth to be 1.75% in 2020 and to reach 8.0% in 2021.

China is hoping its consumers will make up for lost time, especially over the ‘Golden Week’ national holiday period. China’s ministry of culture and tourism expects around 550 million people will shop, travel, and gather with families during the eight-day public holiday, helping to jump-start China’s retail economy.

The Hong Kong Hang Seng PR Index (HKD) returned -6.82%
The Nikkei 225 PR Index (JPY) returned 0.20%
The Shanghai Shenzhen 300 PR Index (RMB) returned -4.75%

EUROPE

In Europe, equities fell 3.3% in September, with banks and insurance sectors down, while retail and health care were positive.

Most EU member economies remain under pressure from COVID-19 containment measures as governments fear a new wave of infections could forestall the recovery. Across the euro area, GDP fell 11.8% in the June quarter, a larger drop than the 9.1% quarter-on-quarter fall experienced in the US.

The Bank of England left its policy settings unchanged, with the bank rate at 0.10% and the QE ceiling at £745 billion. The Bank noted that it does not intend to tighten monetary policy until there is significant progress towards eliminating spare capacity in the labour market and achieving the 2% inflation target.

The UK’s FTSE 100 PR Index (GBP) returned -1.63%
The German Dax (EUR) returned -1.43%

AUSTRALIA

The federal budget has allayed fears that fiscal policy will be doing too little lifting in the face of the pandemic, with a singular focus on supporting incomes and employment. On the spending side, the government has put in place significant stimulatory measures, including $120 billion over 2019-20 and 2020-21, primarily for the JobKeeper payment.

Other measures include $46 billion, mainly for the Coronavirus Supplement, economic support payments to households and an expansion in the JobSeeker payment. $40 billion will be provided as further support for apprentices, trainees, hospitals, aviation and infrastructure.

The RBA has also hinted at further easing, with another rate cut or an announcement of further QE widely expected at its November meeting.

Australian shares followed global markets down through September as the focus shifted to the uncertain path of recovery and the ongoing public health risks due to the pandemic. The IT sector (-6.8%) was hit by the risk-off wave, with buy now pay later fintech Afterpay trimming 12.5% from a $26 billion market cap, while Consumer Staples (-6.6%) also took a sizeable hit during the month.

Harvey Norman (+2.5%) released a sales update for the period 1 July 2020 to 17 September 2020 showing revenue up 30.6% on the prior corresponding period.

Sydney Airport’s traffic performance for August showed total passenger numbers for the month down 96.5% on the prior corresponding period. Domestic passengers totalled 91,000 for the month, down 96.1%, and year to date total domestic passengers of 3.63 million, down 67.5%.

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.

*Source: Lonsec Research Pty Ltd