Economic Review

Global Equity Markets 
There were mixed results for global shares in July with gains concentrated in the US and Chinese share markets. Some positive economic activity data and supportive stimulus measures by central banks and governments helped drive optimism as did some early favorable results from Moderna and Oxford University for a possible virus vaccine. However, the current acceleration in global viral infection cases remains a threat to both global shares and the global economy.

Wall Street made robust gains as solid increases were recorded in business surveys, employment and retail spending for June. US employment increased by a remarkable 4.8m in June with the unemployment rate falling from 13.3% to 11.1%. There were also significant revivals in the ISM and PMI business surveys suggesting a more confident US corporate sector. However, the broader US economy is still struggling with deep recession conditions. June quarter GDP contracted by 8% – the sharpest fall in GDP activity since records began in 1947. The coronavirus continues to cast a shadow with new case infections accelerating in key states such as California, Florida and Texas. The US central bank has maintained its large balance sheet of US$7trn with asset purchases and lending programs for mortgages, corporate and municipal bonds. However, debate continues on the extension of budget stimulus measures for payroll protection and small business support programs.

European shares fell in July as adverse economic data weighed on investor sentiment. European GDP declined by a record 12% in the June quarter, the largest fall since records began in 1995. There were extraordinary GDP activity declines recorded for Spain (-18.5%), France (-13.8%), Italy (-12.4%) and Germany (-10.1%). The European Council and respective national governments have finally agreed on a €750b Recovery Fund.

The Chinese market led Asian share markets in July. Investors were encouraged by China’s positive economic activity data with solid annual growth results for industrial production and GDP in the June quarter. China’s central bank guidance to provide ample liquidity and increase new lending by banks has also been well received by investors. But China’s imposition of a national security law has seen Hong Kong’s share market stagnate. Japanese shares disappointed with continued concerns over the virus’s impact on Japan’s business and consumer confidence.

Table 1: Global share market performance – March 2020
US S&P 500 5.6%
US Dow Jones 2.5%
Euro Stoxx 50 -1.8%
German DAX 0.0%
UK FTSE 100 -4.2%
Japan Nikkei 225 -2.6%
China Shanghai Composite 10.9%
Source: Factset, IRESS, August 2020

Australian share market review
Australian shares made marginal gains in July. The month started on a solid note but most of the initial gains were reversed with concerns that the Melbourne virus outbreak was accelerating. The sharpest gains were in the materials sector as the surge in iron ore, gold and industrial metal prices raised profit expectations for the mining sector.

The Information Technology sector also performed well reflecting the global appetite for tech shares. However the energy sector continued to disappoint given concerns over weak global demand and potential asset write-downs across the globe.

The Australian Dollar (AUD) rose by 3.5% against the US Dollar (USD) during July, to finishthe month at USD0.7143.

Table 2: Australian share market performance – March 2020
S&P/ASX 200 Accumulation Index 0.5%
S&P/ASX 200 Industrials Total Return Index -0.5%
S&P/ASX 200 Resources Total Return Index  4.3%
S&P/ASX Small Ordinaries Total Return Index 1.4%
S&P/ASX 200 A-REIT Total Return Index 0.6%
Source: Factset, IRESS, August 2020

Large Caps (S&P/ASX100)
ALS Limited was the strongest performer in the S&P/ASX 100, returning 29.4% during July, followed by Fortescue (+25.7%) and Oz Minerals (+24.4%). The worst performing Australian large cap stocks during the month were AMP (-21.0%), Qantas (-17.1%) and Challenger (-11.8%).

Listed property
The S&P/ASX 200 AREIT Total Return Index posted a 0.6% increase in July, just ahead of the S&P/ASX 200 Total Return Index by 0.1%. Industrial AREITs (+13.6%) were the only sector to post an increase. The other sectors posted declines with Diversified AREITs down by -1.9%, followed by Retail AREITs (-5.5%) and Office (-6.7%).

Written 6 August 2020.

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