Market Update - May 2020

The rebound in risk assets that began in late March extended into May and volatility continued to decline. With regards to COVID-19 developments, investors have been increasingly shifting their focus to the relaxation of lockdowns and how reopening will affect economies. The more moderate pace of market moves in May relative to the prior month suggests that markets were watchful of how the situation was developing.

Many countries began some level of reopening, with New Zealand and Australia ranking among the world’s most successful countries in containing the pandemic so far. In the US, many states have also begun to reopen. The S&P500 ended the month 4.7% higher, reversing most of its losses from the March quarter by the end of May and ending the month only 10% below its pre-COVID February peak.

In contrast to the global stock market recovery in May, economic data have been very weak. In Australia the April unemployment rate jumped to 6.2% (from 5.2%), the highest since September 2015 but below market expectations of 8.3%.  Meanwhile, the Australian Treasury revealed a substantial error in estimating the coverage and cost of the JobKeeper wage subsidy scheme, halving the original coverage estimate of 6.5 million workers and revising the cost of the scheme to $70bn (from $130bn). The Reserve Bank of Australia (RBA) maintained the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points at its May meeting. 

In the US the unemployment rate reached 14.7%, the highest level in post-war history, with around 10 million additional claims for unemployment benefits in May. US corporate earnings releases for the March quarter reported a contraction by around 14% relative to last year. The expectations for June quarter GDP and earnings growth are considerably worse than the March quarter, given the lockdowns started around the end of March and activity, despite improving, remains very far from full capacity. The US Federal Reserve (Fed) made no meaningful adjustments to policy at its May meeting.  The Fed Chair Jerome Powell signaled hesitation to using negative rates due to the expected downside effects on the banking sector.

In Europe, attention has centered around the €750bn European Union (EU) recovery fund unveiled by the European Commission. The fund would borrow from the financial markets between 2021 to 2024 to spend mostly on grants and loans to EU countries. This would help countries with already high debt levels to access funding without having to issue more of their own debt. The European Central Bank (ECB) bought over €125bn in government and corporate bonds over the past month, and the ECB’s pandemic purchase programme was subsequently ramped up at its meeting on 4 June.

Oil prices recovered significantly in May, with the WTI crude oil price spiking over 88% during the month, marking its best monthly performance on record as an uptick in demand as well as record supply cuts pushed prices higher to around US$35. Despite the recovery, the commodity is still down 42% year to date and far away from its January high of US$66.  The surge in oil prices did not translate into performance of Energy stocks, which rose only 0.7% (unhedged in AUD) for the month.

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

Market Performance - 31 May 2020





Australian Equities





Overseas Equities (Hedged into AUD)





Overseas Equities (Unhedged into AUD)





Emerging Markets (Unhedged into AUD)





Australian Property (Unlisted)





Australian Property (Listed)





Global Listed Property (Hedged into AUD)





Australian Bonds





Overseas Bonds (Hedged into AUD)










Australian Dollar vs. US Dollar





Source – JANA, FactSet

The optimism surrounding global equities resonated within the Australian stock market with the S&P/ASX 300 Index ending the month 4.6% higher. The domestic market was led by Information Technology, which gained 14.3%, topping up its strong April gains and breaking through into positive territory for the calendar year to date (CYTD +5.9%) and outperforming the only other positive performer in 2020 to date, Healthcare (CYTD +1.0%), which corrected in May (-5.1%). The correction in Healthcare was driven by Pharmaceutical stocks (-10.1%).  Financials were up by 5.3% in May but continue to lag the rest of the market in 2020 to date (CYTD -22.0%), together with Energy (CYTD -32.1%).

The MSCI World Index ex-Australia (hedged into AUD) rose by 4.8% over the month. At the outset, developed markets outperformed emerging markets, with a large dispersion of performance across regions. In developed markets, Israel (9.6%), Portugal (9.3%), Finland (7.5%), Germany (7.2%) and Japan (6.7%) outperformed the broader market, while Hong Kong (-8.4%) and Singapore (-2.8%) moved lower. In emerging markets (EM), Argentina (19.9%) led performance, far ahead of the next best performer Brazil (8.9%), which performed well despite accelerating COVID-19 infections, supported by the rebound in oil prices.  Chile (-8.8%) was the biggest laggard in EM.

The Australian Dollar (AUD) appreciated against most of the major developed market currencies over the month of May, gaining 3.4% against the Pound, 2.1% against the Yen, and 1.4% against the US Dollar. 

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