The share markets continued to rally during August with market volatility increasing towards the end of the month. The number of COVID-19 cases rose globally as a second wave forced many policymakers to reverse the gradual easing of social distancing measures and implement targeted precautionary measures. With emergency government support globally beginning to taper off, the economic outlook will largely be dependent on the severity of individual country containment measures and the possible development of a vaccine.
In Australia virus concerns continued to persist with some states still enforcing border closures and Melbourne extending strict social restriction measures. The Reserve Bank of Australia announced that it will keep the cash rate unchanged at 0.25%. Furthermore, the unemployment rate increased to 7.5% with the participation rate rising to 64.7% in August.
In the USA, economic indicators were broadly positive. Around 84% of companies reported earnings that were ahead of expectations for second-quarter earnings season which ended in August despite earnings per share (EPS) being down 33% year on year. Manufacturing and services indices continued their upward expansion from the previous month. Additionally, the Federal Reserve announced a more accommodating shift in their monetary policy strategy by announcing average inflation targeting, which would allow the inflation rate to move above and below the 2% target for periods of time.
In Europe, clusters of COVID-19 infections re-emerged in August, particularly in Spain and France, where daily increases were close to levels seen at the height of the crisis in March and April. Hard economic data suggests a muted response to the rising infections, where the seasonally-adjusted unemployment rate increased slightly to 7.8% from 7.7%, while retail sales recovered to their pre-crisis levels after monthly gains of 20.3% and 5.7% in May and June, respectively.
The investment returns of the major markets for one month, one quarter, financial year (2 months), and one year to 31 August 2020 are summarised below.
| Market Performance - 31 August 2020 |
Month |
Quarter |
FYTD |
1YR |
|---|---|---|---|---|
| Australian Equities |
3.0% |
6.2% |
3.7% |
-4.8% |
| Overseas Equities (Hedged into AUD) |
6.2% |
12.3% |
9.7% |
12.7% |
| Overseas Equities (Unhedged into AUD) |
3.5% |
3.0% |
4.2% |
7.3% |
| Emerging Markets (Unhedged into AUD) |
-0.9% |
7.5% |
3.8% |
4.7% |
| Australian Property (Unlisted) |
0.5% |
0.4% |
0.7% |
-2.5% |
| Australian Property (Listed) |
7.9% |
7.3% |
8.6% |
-17.2% |
| Global Listed Property (Hedged into AUD) |
2.1% |
5.8% |
3.4% |
-16.6% |
| Australian Bonds |
-0.4% |
0.3% |
-0.1% |
1.6% |
| Overseas Bonds (Hedged into AUD) |
-0.7% |
0.8% |
0.3% |
2.5% |
| Cash |
0.0% |
0.0% |
0.0% |
0.7% |
| Australian Dollar vs. US Dollar |
3.1% |
11.4% |
7.4% |
9.8% |
Source - JANA, FactSet
The Australian equity market (S&P/ASX 300 Index) rose 3.0% in August, with Information Technology (15.2%) and Consumer Discretionary (9.7%) being the strongest performing sectors, while Utilities (-4.8%) and Telecommunication Services (-3.8%) were the largest detractors. Small caps (7.2%) and mid-caps (6.3%) performed strongly relative to large caps (1.8%) during the month. Australian REITs (7.9%) outperformed Global REITs (2.1%).
The MSCI World Index ex-Australia (hedged into AUD) rose 6.2% over the month with the Standard & Poor's 500 Index in the US rising 7.0% and Japan climbing 7.9%. Portugal (-1.1%) and New Zealand (-0.5%) underperformed. The MSCI Emerging Markets Index (unhedged) declined by 0.9%, underperforming developed markets (unhedged) by a large margin.
Australian and overseas bonds posted negative returns for the month. The Australian Dollar appreciated significantly against the Japanese Yen and US Dollar, rising 3.4% and 3.1% respectively.
