Economic Review

06 Mar

Economic Review

Global Equity Markets 
Global shares fell sharply in February. The coronavirus has spooked markets as the number and rate of new infections has accelerated across many nations following the original outbreak in China. Particularly concerning is the scale of infections in Korea, Iran and Italy. Notably the World Health Organisation increased their risk assessment to very high at the global level on 28 February 2020.

Wall Street had made new record highs early in February on the back of solid economic data and the US Senate’s acquittal of President Trump on impeachment charges. However, the acceleration in China’s coronavirus infections and transmission across other countries undermined confidence in global share markets. The Centre for Disease Control issued a warning on 25 February of the likely spread of the virus to the United States. In the final week of February, the benchmark S&P 500 fell 11.5 % in response to the virus concerns.

European shares also slumped in line with concerns over the coronavirus. Europe’s exporters have struggled in the past year with trade tensions with the US, so this new virus comes at a challenging time. UK shares also fell in line with global concerns over the coronavirus.

Asian share markets delivered comparable falls on virus concerns. But the key positive surprise was the resilience of China’s share market. This can be viewed as a positive response to China’s central bank cutting interest rates and providing guidance to the major banks to lend to small and medium enterprises. However there have been anecdotal reports of significant buying by official government agencies as well to support China’s share markets.

Table 1: Global share market performance – February 2020
US S&P 500 -8.3%
US Dow Jones -9.8%
Euro Stoxx 50 -8.6%
German DAX -8.4%
UK FTSE 100 -9.0%
Japan Nikkei 225 -8.8%
China Shanghai Composite -3.2%
Source: Factset, IRESS, March 2020

Australian share market review
Australian shares also declined sharply amidst the global gloom. While there was some benefit from a weaker Australian Dollar and the stable performance of some key commodity prices (iron ore, gold), the virus headlines dominated the market. Typically, investor attention during February focuses on reporting season – but with results and outlook statements progressively becoming more negative over the month these just fed the virus gloom. There were falls across all the sectors with Information Technology and Energy leading the slide.

The resource sector also slumped with concerns that weaker global demand for commodities will prevail until the virus is contained.

The Australian Dollar (AUD) was weaker against all major currencies and fell by 2.6% against the US Dollar (USD) to finish the month of February at USD0.6515.

Table 2: Australian share market performance – February 2020
S&P/ASX 200 Accumulation Index -7.7%
S&P/ASX 200 Industrials Total Return Index -6.3%
S&P/ASX 200 Resources Total Return Index  -13.3%
S&P/ASX Small Ordinaries Total Return Index -8.7%
S&P/ASX 200 A-REIT Total Return Index -4.9%
Source: Factset, IRESS, March 2020

Large Caps (S&P/ASX100)
Cleanaway Waste Management (+11.3%), Evolution Mining (+10.6%) and Northern Star Resources (+6.8%) were the best performing large cap stocks during February.

The worst performing Australian large cap stocks during the month were Wisetech Global (- 39.7%), Beach Energy (-33.9%) and Link Administration (-31.0%).

Listed property
The S&P/ASX 200 AREIT Total Return Index declined by 4.9% in February 2020, outperforming the S&P/ASX 200 Total Return Index by 2.8%.

Industrial AREITs were the strongest performers during February, recording a rise of +0.6% in contrast with the other sectors which all declined. Office AREITs posted a 4.8% decline followed by Diversified AREITs (-5.5%) and Retail sector AREITs (-8.1%).

Written 5 March 2020.

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