Market Update - June 2020

The share market rally that began in late March slowed its pace in June. While most asset classes ended the month in solid positive territory, the gains were modest compared to April and May. Fears of a ‘second wave’ of COVID-19 infections from increasing numbers of cases in the US, India and Latin America were offset against some better than expected economic data. Tensions between the US and China continued over the origination of the virus. Additionally, China passed a controversial new security law for Hong Kong which makes it easier to punish protesters and at the same time reduces Hong Kong’s autonomy.

In the US, states that had previously been less impacted saw cases of COVID-19 surge, most notably Texas, Arizona, Florida and California, prompting some states to postpone or wind back their re-opening plans. This contrasted with falling infection numbers in the American Northeast. Economic data surprised on the upside as the economy reopened. Unemployment reduced from 13% to 11%, and there were strong rises in pending home sales and car sales. The US Federal Reserve extended small business lending support and commenced a corporate bond buying program.

The daily number of new coronavirus cases continued to rise in many other regions, in part from a surge in new cases in emerging countries such as Brazil and India. Despite this, economic data released during June continued to show the positive impact of economies reopening around the world such as in China and Germany.

In Australia, initial market enthusiasm waned late in the month as cases in Victoria began to rise significantly, with new cases rising to levels last seen in April. March quarter GDP data released in June was marginally negative due to the impact of the COVID-19 shutdowns that were implemented in late March and earlier bushfires. The May unemployment figure rose to 7.1%, but retail sales rebounded by 16.3% in June and the property market remained resilient.

The investment returns of the major markets for one and three months, and financial year (or one year) to 30 June are summarised below.

Market Performance - 30 June 2020 Month Quarter FYTD or 1YR
Australian Equities 2.4% 16.8% -7.6%
Overseas Equities (Hedged into AUD) 2.3% 18.0% 1.9%
Overseas Equities (Unhedged into AUD) -1.1% 6.1% 5.8%
Emerging Markets (Unhedged into AUD) 3.5% 5.1% -1.2%
Australian Property (Unlisted) 0.5% -3.2% -1.9%
Australian Property (Listed) -1.2% 20.2% -20.7%
Global Listed Property (Hedged into AUD) 2.3% 8.8% -16.8%
Australian Bonds 0.3% 0.5% 4.2%
Overseas Bonds (Hedged into AUD) 0.5% 2.3% 5.2%
Cash 0.0% 0.1% 0.8%
Australian Dollar vs. US Dollar 3.7% 12.5% -1.9%

Source – JANA, FactSet

The Australian equity market (S&P/ASX 300 Index) rose 2.4% in June, with Consumer Discretionary (5.0%) and Financials (4.3%) the strongest sectors, while the Energy (-2.1%) and Industrials (-1.6%) sectors were the biggest detractors. Large caps (2.7%) strongly outperformed small caps (-2.2%) over the month. Australian listed property (-1.2%) underperformed Global listed property (2.3%).

The MSCI World Index ex-Australia (hedged into AUD) rose 2.3% over the month, outperforming the US market (S&P 500) which rose 1.84%. In developed markets, Hong Kong (11.0%) and New Zealand (8.2%) outperformed the broader market, while Greece (-3.7%) and the Norway (-2.2%) underperformed. On an unhedged basis, the World Index fell 1.1%, reflecting the rise in the AUD over the month. The MSCI Emerging Markets Index (unhedged) (3.5%) outperformed developed markets (hedged and unhedged), supported by China’s recovery.

Australian and overseas bonds posted a positive return over the month. The Australian Dollar finished higher against most of the major developed market currencies over the month, except against the New Zealand Dollar (-0.2%)