Economic Review
Global Equity Markets
Global shares fell in September after August’s strong gains. The coronavirus continues to weigh on global economies with new infections approaching three hundred thousand per day. Particularly concerning is the continued acceleration of new cases in India as well as the recent revival in France, Spain and Britain. Political risk is also becoming more prominent. The US Presidential election, wrangling in the US Congress between Republicans and Democrats over further budget support measures as well as US-China tensions over human rights and technology were key concerns during September.
Wall Street made new record highs in the first week of September as signs of promising growth in both US business surveys and employment were welcomed by investors. The US unemployment rate provided a positive surprise by declining from 10.2% to 8.4%. However, this optimism evaporated over the next three weeks. Political concerns came to the fore with the Republican and Democrat parties failing to agree on new budget measures and the Presidential campaign intensifying. The Federal Reserve also provided a mild disappointment by not increasing their asset purchases and lending programs.
European shares drifted lower in September. Concerns that the revival in new infection cases in France, Spain and the UK could derail the economic recovery were the catalyst for lower share prices. Europe’s PMI survey for the service sector has also softened, suggesting that some of the recent recovery momentum has faded.
Asian share markets were mixed. While China’s economic activity is still consistent with an encouraging revival in industrial production and retail sales, investors are concerned about the future political relationship between Beijing and Washington. In contrast, Japanese shares recorded mild gains given pledges of continued fiscal support from new Prime Minister Suga.
Table 1: Global share market performance – September 2020
US S&P 500 -3.8%
US Dow Jones -3.3%
Euro Stoxx 50 -2.4%
German DAX -1.4%
UK FTSE 100 -1.5%
Japan Nikkei 225 2.3%
China Shanghai Composite -5.2%
Source: Factset, IRESS, September 2020
Australian share market review
Australian shares performed poorly in September. The Energy sector recorded the largest falls on falling oil prices and expectations for asset write-downs as anti-carbon sentiment increases. Following a strong run over recent months, the Information Technology sector declined in line with a more cautious global appetite. Financial sector shares were also weak with concerns over rising doubtful debts as the ‘Jobkeeper’ and ‘loan repayment deferral’ programs taper off. The only significant bright spot in September was a small gain for the healthcare sector.
The Australian Dollar (AUD) fell by 3.0% against the US Dollar (USD) during September, to finish the month at USD0.7158.
Table 2: Australian share market performance – September 2020
S&P/ASX 200 Accumulation Index -3.7%
S&P/ASX 200 Industrials Total Return Index -3.2%
S&P/ASX 200 Resources Total Return Index -5.3%
S&P/ASX Small Ordinaries Total Return Index -2.8%
S&P/ASX 200 A-REIT Total Return Index -1.5%
Source: Factset, IRESS, September 2020
Large Caps (S&P/ASX100)
Boral was the strongest performer in the S&P/ASX 100, returning 13.7% during September, followed by Washington H Soul Pattinson (+12.3%) and Orora (+9.8%). The worst performing Australian large cap stocks during the month were Origin Energy (-21.7%), Oil Search (-19.2%) and QBE Insurance (-18.8%).
Listed property
The S&P/ASX 200 AREIT Total Return Index posted a 1.5% decrease in September, outperforming the S&P/ASX 200 Total Return Index by 3.2%. Diversified AREITs (+0.1%) and Office AREITs (+0.1%) were the better performing sectors. Retail AREITs were weakest (-3.6%) on concerns about structural changes to how we shop and continued demands by some tenants for lower rents. Industrial AREITs declined by 1.9%.
Written 6 October 2020.
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