Market update - February 2020

After the backdrop of strong market returns throughout 2019 and the early part of 2020, from mid-February the spread of the coronavirus COVID-19 sparked fear that the health crisis would stifle global economic growth.  Global equity markets started the month strongly, but these early gains were quickly retracted as the spread of coronavirus outside China saw global equity markets sell off.

Early in February sentiment remained upbeat in the US as the S&P 500 reached record highs.  Strong non-farm payroll data, a better than expected reporting season, and the acquittal of President Trump all contributed to strong performance early in the month.  However as the month progressed, the escalation in number of cases of COVID-19 outside China, and in particular the reports of a growing number of cases in Europe and the US, triggered an aggressive sell off in global equity markets and sharp decline in US Treasury yields to a record low of 1.1% for the US 10-year bond.  Similarly in the Eurozone, although some economic indicators such as the forward-looking Purchasing Managers’ Index survey provided some positive trend, the escalation of COVID-19 cases, particularly in Italy, had caused significant falls in equity markets.

During February, the Reserve Bank of Australia kept interest rates at 0.75%, stating that the 2019 cuts had their desired effect in “supporting employment and income growth”. However, this was later cut to 0.50% on the 3rd of March and to 0.25% on the 19th of March.

The investment returns of the major markets for one and three months, financial year, and one year to 29 February 2020 are summarised below.

Market Performance - 29 February 2020

Month

Quarter

FYTD

1YR

Australian Equities

-7.8%

-5.2%

-0.1%

8.7%

Overseas Equities (Hedged into AUD)

-8.4%

-6.6%

-0.3%

5.0%

Overseas Equities (Unhedged into AUD)

-4.8%

-1.5%

8.6%

16.3%

Emerging Markets (Unhedged into AUD)

-1.6%

1.9%

5.5%

8.7%

Australian Property (Unlisted)

0.5%

1.6%

3.6%

5.8%

Australian Property (Listed)

-4.7%

-3.0%

1.7%

12.3%

Global Listed Property (Hedged into AUD)

-8.0%

-6.9%

-0.5%

3.2%

Australian Bonds

0.9%

1.5%

3.9%

9.0%

Overseas Bonds (Hedged into AUD)

1.2%

2.8%

4.6%

9.3%

Cash

0.1%

0.2%

0.7%

1.3%

Australian Dollar vs. US Dollar

-3.7%

-4.7%

-8.1%

-9.4%

Source – JANA, FactSet

Australia was not immune to the sell-off experienced by the global markets as it traded 7.8% lower.  The sharp decline of the crude oil price (-13%) saw the Energy sector underperform the broader market.  Health Care (-4.0%), Utilities (-4.0%) and Property (-4.7%) all outperformed the broader Index.  February also saw the earnings reporting season end, with more companies missing expectation than those that exceeded expectations.  Real Estate and Industrials earnings performed the strongest, marginally beating expectations, while Financials, Consumer Discretionary, Communications, and Health Care all missed expectations by a significant amount. 

The MSCI World Index ex-Australia (hedged into AUD) fell 8.4% over the month.  In developed markets, Hong Kong (-1.1%) and Singapore (-5.0%) outperformed the broader market, while Greece (-21.4%) and Japan (-9.6%) underperformed.  The MSCI Emerging Markets Index (-1.6%) outperformed unhedged developed markets (-4.5%). Within the emerging markets, while China continued to implement measures to limit the impact of COVID-19, including limiting travel and attendance at work, its equity market as measured by the MSCI China Index was up by 1.2%,  outperforming the broader market.  

The Australian Dollar depreciated against most of the major developed market currencies over the month, retreating 3.7% relative to the US Dollar and 4.2% relative to the Japanese Yen.  The bond markets posted positive returns in February with yields reaching record lows in a number of major economies.