Global Equity Markets
Global shares declined sharply in December. Concerns over global trade prospects, rising US interest rates, Brexit and signs of a slowing global economy weighed heavily on global markets.
Wall Street led the price declines. Both the S&P 500 and NASDAQ recorded falls exceeding 9%. President Trump’s rhetoric on global trade generated concerns that the tariff truce with China and Europe would only be temporary. President Trump’s tweet on 5 December indicated that he favoured tariffs as a way to maximise the country’s economic power.
The Federal Reserve (FED) also raised US interest rates by 0.25 % in December and indicated that further interest rate increases are projected in 2019. FED chair Jerome Powell indicated that the US economy was healthy with strong jobs growth and a low unemployment rate. This US labour market strength and the Trump Administration’s threat of further tariffs are seen as considerable risks for Wall Street in terms of future interest rates settings and corporate profit margins.
European shares continued their disappointing performance for 2018. Lingering concerns over global trade weighed on European shares. European economic activity also appears to be slowing judging by the softer business and consumer surveys. There were also significant concerns over European political risks. Apart from Brexit (Britain’s exit from the European Union), France’s ‘yellow vests’ protests and Italy’s contentious budget stance were also significant negative factors which may have impacted performance.
Asian share markets also fell sharply. Japanese shares slumped by -10% with acute sensitivity to global trade concerns as well as a rising currency against the US Dollar. President Trump’s assertive trade stance as well as softer Chinese economic activity results saw the Chinese stockmarket finish down for December.
Table 1: Global share market performance – December 2018
US S&P 500 -9.2%
US Dow Jones -8.7%
Euro Stoxx 50 -5.3%
German DAX -6.2%
UK FTSE 100 -3.1%
Japan Nikkei 225 -10.5%
China Shanghai Composite -3.6%
Source: Factset, IRESS
Australian share market review
Australian shares slipped further with a -0.4 % price fall in the S&P/ASX 200 Index but were relatively resilient compared to global shares. Resources performed strongly but large falls were seen in the communication (-5.1%) and information technology sectors (-4 %). Financial shares also fell sharply (-3.1%) given concerns over a cooling housing market and tighter lending standards. Small gains were posted by the health care (+2.9%) and utilities sectors (+2.0%).
Australia’s economic data has been generally positive excluding the housing sector. The labour market continues to perform solidly in terms of jobs growth and consumer sentiment appears to have revived. The NAB business survey also shows solid conditions for the corporate sector. However house prices continue to drift lower in the Sydney, Melbourne and Perth markets. The Reserve Bank (RBA) kept the cash interest rate on hold at 1.5% but acknowledged that housing credit conditions are tighter than they have been for some time.
The Australian dollar (AUD) declined against all major currencies and finished the year at USD0.705.
Table 2: Australian share market performance – December 2018
S&P/ASX 200 Accumulation Index -0.1%
S&P/ASX 200 Industrials Accumulation Index -1.4%
S&P/ASX 200 Resources Accumulation Index -5.1%
S&P/ASX Small Ordinaries Accumulation Index -4.2%
S&P/ASX 200 A-REIT Accumulation Index +1.7%
Source: Factset, IRESS
Large Caps (S&P/ASX100)
Evolution Mining (+17.5%), Northern Star Resources (+15.8%) and BHP Group (+11.5%) were the best performing large cap stocks during December.
- Evolution Mining (EVN) – Australian based gold producer EVN provided an upbeat report to shareholders at its AGM in late November 2018. It also benefited from the 4.5% rise in the gold price during December.
- Northern Star Resources (NST) – Gold miner NST’s share price enjoyed the benefit of the rise in the gold price and a boost from its exploration update which noted a substantial increase in inventory and Australian mine lives.
- BHP Group (BHP) – BHP successfully completed its US$5.2b off market buy-back and also announced a US$1.02 per share special dividend during December.
The worst performing Australian large cap stocks during the month were IOOF Holdings (-25.1%), Adelaide Brighton Ltd (-17.6%) and Incitec Pivot Limited (-12.8%).
- IOOF Holdings (IFL) – A notification from APRA regarding imposition of conditions on IOOF and planned court proceedings regarding breaches of the Superannuation Industry (Supervision) Act that include potential disqualification orders against IOOFs Chair, Managing Director and several other senior executives. IFL’s purchase of ANZ’s OnePath Pensions and Investments business was also thrown into doubt.
- Adelaide Brighton Ltd (ABC) – ABC provided revised earnings guidance for the year to 31 December 2018 that was lower than the company provided in August 2018.
- Incitec Pivot Limited (IPL) – IPL’s share price decline continued in December.
The S&P/ASX 200 AREIT Accumulation Index rose by 1.7% in December 2018, outperforming the S&P/ASX 200 Accumulation Index by 1.8%.
All AREIT sectors recorded positive performances in December with the exception of Retail (-1.4%). The strongest AREIT sector was Industrial (+4.8%), followed by Diversified (+3.7%) and Office (+3.5%).
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