Market Update - July 2020

The social distancing measures implemented by many countries to contain COVID-19 infections have had some success in controlling the virus, although pockets of outbreaks around the world continue to emerge. Prospects for a vaccine were boosted by positive early-stage trial results, but a timeline for it being publicly available remains unclear. The state of infections and recovery plans by governments vary across regions and countries and tend to shift in various directions over a short time span.

In the US, daily new infections began to rise again throughout most of July, with California, Florida, Texas and many southern states seeing a surge in confirmed cases. US GDP for the June quarter fell by an annualised rate of 32.9%, which is the largest contraction on record. However, with the reopening of much of the economy, unemployment reduced from 11.1% to 10.2%, and retail sales rebounded 27% from their low in April. The annual inflation rate increased to 0.6% in June. The US Congress and the Trump Administration are negotiating a second stimulus package with an extension to unemployment benefits and a second round of stimulus. The Federal Reserve left interest rates near zero and indicated that raising rates is not in the Reserve’s agenda until the path to economic recovery from the pandemic is clear.

The UK and Europe have fared well in managing the virus over recent months, although concerns have risen over an increase in cases more recently as the tourist season regains momentum and restrictions have been lifted. In Europe, GDP fell by 12.1% over the June quarter and the composite Purchasing Managers Indices (PMI), a leading indicator of economic activity, increased significantly.

The number of new cases across many emerging countries such as Brazil and India continued to rise throughout July. There has also been a large spike in the number of cases in Hong Kong. China made steady progress in restarting activity, while remaining vigilant, along with South Korea, and neither country has seen a significant rise in case numbers. In China, GDP grew 3.2% year on year to June, rebounding from the sharp fall in the previous quarter.

In Australia, the COVID-19 crisis has weighed heavily on the economy as State borders were closed. Melbourne was placed under strict restrictions for six weeks, and the rest of the country remained on high alert. As a result, the upward momentum in activity levels stalled in July. The contraction in activity was evident in the latest inflation data, with the Consumer Price Index (CPI) falling 1.9% in the June quarter, the largest quarterly fall on record.

The investment returns of the major markets for one and three months, financial year, and one year to 31 July 2020 are summarised below.

Market Performance - 31 July 2020

Month

Quarter

FYTD

1YR

Australian Equities

0.6%

7.8%

0.6%

-9.7%

Overseas Equities (Hedged into AUD)

3.3%

10.8%

3.3%

4.0%

Overseas Equities (Unhedged into AUD)

0.6%

3.0%

0.6%

4.0%

Emerging Markets (Unhedged into AUD)

4.7%

7.7%

4.7%

2.8%

Australian Property (Unlisted)

0.5%

-0.3%

0.5%

-2.5%

Australian Property (Listed)

0.6%

6.4%

0.6%

-22.2%

Global Listed Property (Hedged into AUD)

1.3%

3.8%

1.3%

-16.6%

Australian Bonds

0.4%

1.0%

0.4%

3.6%

Overseas Bonds (Hedged into AUD)

1.0%

1.8%

1.0%

5.5%

Cash

0.0%

0.0%

0.0%

0.7%

Australian Dollar vs. US Dollar

4.2%

9.5%

4.2%

4.0%

Source – JANA, FactSet

The Australian equity market (S&P/ASX 300 Index) rose 0.6% in July, with Materials (5.9%) and Information Technology (4.8%) the strongest performing sectors, while the Energy (-6.3%), Industrials (-3.8%) and Health Care (-3.8%) sectors were the largest detractors. Small caps (1.4%) and mid caps (2.0%) strongly outperformed large caps (0.2%) over the month. Australian real estate (REITs) was up 0.6%, underperforming Global REITs (1.3%).

Global equity markets continued to rally in July. The MSCI World Index ex-Australia (hedged into AUD) rose 3.3% over the month. In developed markets, the USA (5.9%) and Canada (4.3%) outperformed the broader market, while Austria (-5.9%) and Spain (-4.8%) underperformed. The MSCI Emerging Markets Index (unhedged) returned 4.7% over July, outperforming developed markets (hedged and unhedged). This was supported by China’s strong recovery in industrial activity over recent months, which drove its equity market higher.

The Australian Dollar appreciated against most of the major developed market currencies over the month, with the exception of the Euro (-1.1%) and Pound Sterling (-1.9%). Rising resources prices and improved economic activities in China lifted the currencies of its trading partners, including the Australian dollar.  

Australian and overseas bonds posted a positive return over the month.