As noted last month, the global spread of the respiratory disease from Covid-19 started to rattle markets during the second half of February, and it continued during the first three weeks of March. The unprecedented economic and societal effects coupled with unprecedented fiscal and monetary responses by policy makers to Covid-19 highlighted one of the most eventful months in recent history. Some of the notable economic and market events were: public lockdowns in most countries, jobless claims rocketing, sharp falls in commodity prices with oil caught in a dispute between OPEC and Russia to constrain supply, out of cycle interest rate cuts and quantitative easing (bond buying) in many countries and various forms of stimulus offered by various governments.
In Australia the Federal Government announced three separate stimulus packages totaling more than $200 billion, which were coupled with further State-driven initiatives. In line with global monetary policy responses, the RBA reduced the cash rate twice in March, initially reducing the rate to 0.50% early in the month before an out-of-cycle meeting on the 19 March further reduced the cash rate to a new record low of 0.25%. Additionally, the RBA announced it would purchase Government and Semi-Government securities across the yield curve to maintain target yield ranges and address market dislocations.
In the US confirmed COVID-19 cases rose from 62 at the beginning of March to nearly 200,000 by the end of March, causing initial jobless claims climbing to over three million in the last week of March. As a result, the Federal Reserve cut interest rates twice in a month for the first time since the GFC and announced unlimited quantitative easing in the form of purchasing unlimited government bonds as necessary. Additionally, fiscal stimulus came in the form of the US Congress passing a $2 trillion stimulus package including $250 billion worth of direct payments to households, $500 billion for loans to distressed companies and $350 billion for small business loans.
Various strategies and policies similar to the above were implemented by most European and some other countries over the month of March.
Considering the extraordinary market circumstances in March, economists have now moved on from a debate as to whether there will be a recession this year, to how deep and how long it will be.
The investment returns of the major markets for one and three months, financial year, and one year to 31 March 2020 are summarised below.
Market Performance – 31 March 2020
Overseas Equities (Hedged into AUD)
Overseas Equities (Unhedged into AUD)
Emerging Markets (Unhedged into AUD)
Australian Property (Unlisted)
Australian Property (Listed)
Global Listed Property (Hedged into AUD)
Overseas Bonds (Hedged into AUD)
Australian Dollar vs. US Dollar
Source – JANA, FactSet
The MSCI World Index ex-Australia (hedged into AUD) fell 13.4% over the month. In developed markets, Denmark (-3.4%) and Switzerland (-4.3%) held up against the broader market, while Austria (-31.6%), Greece (-25.9%) and Italy (-22.5%) were the hardest hit. Within emerging markets, South American equity markets were some of the worst performers, with Colombia (-32.3%) and Argentina (-32.1%) performing very poorly. The MSCI China Index (-6.7%) outperformed the broader emerging markets Index.
Domestically, the Australian share market felt the full force of COVID-19 impacts throughout the month with the S&P/ASX 300 Accumulation Index falling -20.8%, underperforming global equity markets and suffering the worst single month since October 1987. All domestic equity sector returns were negative in March with those lagging the broader Index including Industrials (-23.0%), Consumer Discretionary (-26.4%), Financials (-27.7%) and Real Estate (-35.1%), with Energy (-37.6%) the worst-performing sector driven by large cap oil stocks. The best performing sector was Consumer Staples (-3.6%), followed by Health Care (-5.6%) and Utilities (-6.7%) which also outperformed the broader market. Overall, large caps outperformed small and mid-cap stocks throughout the month.
Australian and overseas bonds posted negative returns over the month.
The Australian Dollar depreciated against most of the major developed market currencies over the month, retreating 5.1% relative to the US Dollar and 5.0% relative to the Euro.