Market Update - October 2020

October was punctuated by two key themes.  The first was the resurgence of COVID-19 in Europe, which led to the announcement of widespread restrictions across several countries.  The second was the lead-up to the Presidential elections in the US, which were held on 3 November.  In response to the uncertainty surrounding these two events, investors who were previously adopting a ‘wait-and-see’ approach reassessed near-term risks and took a more cautious approach, leading to an overall decline in Global Equities of -2.6% (hedged) during the month.

US shares declined -2.6% as COVID-19 cases continued to increase in most states, compounded by uncertainty surrounding the (at the time, uncertain) election outcome.  Progress on additional fiscal stimulus negotiations also stalled, causing market optimism to decline.  Eurozone shares also registered declines across the board, as several countries reintroduced national lockdown measures in an attempt to contain rising infection rates.  The European Central Bank kept monetary policy unchanged but indicated that additional stimulus measures will likely be announced in December.  In the UK, equities also fell as the government introduced nation-wide restrictions across England.  In addition, the government announced an extended ‘Coronavirus Job Retention Scheme’ (furlough scheme) until December, under which employees will receive 80% of their current salary for hours not worked, up to £2,500 a month.

Domestically, a supportive Federal Budget, the easing of COVID-19 restrictions and the gradual re-opening of Victoria saw Australian equities move in a positive direction, with local market sentiment generally more optimistic than in the US, UK and Eurozone.  Earnings revisions rose, narrowing the gap between the Australian and the other developed markets.  However, ABS figures showed that 29,500 jobs were lost during September, slightly increasing the headline unemployment rate from 6.8% to 6.9%.

The investment returns of the major markets for one month, one quarter, financial year to date, and one year to 31 October 2020 are summarised below.

Market Performance - 31 October 2020

Month

Quarter

FYTD

1YR

Australian Equities

1.9%

1.2%

1.8%

-7.9%

Overseas Equities (Hedged into AUD)

-3.2%

-0.1%

3.2%

1.7%

Overseas Equities (Unhedged into AUD)

-1.1%

2.1%

2.7%

3.3%

Emerging Markets (Unhedged into AUD)

4.2%

4.9%

9.8%

6.6%

Australian Property (Unlisted)

0.5%

0.8%

1.0%

-3.3%

Australian Property (Listed)

-0.3%

6.4%

7.1%

-17.2%

Global Listed Property (Hedged into AUD)

-3.3%

-3.8%

-2.5%

-24.8%

Australian Bonds

0.3%

0.9%

1.3%

4.0%

Overseas Bonds (Hedged into AUD)

0.0%

-0.4%

0.7%

3.8%

Cash

0.0%

0.0%

0.0%

0.5%

Australian Dollar vs. US Dollar

-2.0%

-2.1%

2.0%

1.9%

Source – JANA, FactSet

The Australian equities market (S&P/ASX 300 Index) gained 1.9% in October, recovering from the previous month’s negative performance.  Industrials (-3.5%) was the primary detractor, followed by Utilities (-1.5%).  IT (8.6%) was the strongest performing sector, due in large part to ‘buy now and pay later’ platform Afterpay’s strong performance during the month.  Mid-Caps (6.1%) significantly outperformed both Large Caps (1.3%) and Small Caps (0.5%).  Australian REITs (-0.3%) underperformed the broader equities market, but outperformed Global REITs (-3.3%, on a hedged basis).

Developed markets equities fell over the month, with the MSCI World Index ex-Australia (hedged into AUD) dropping -3.2%.  New Zealand (0.5%) outperformed the broader market, while Germany (-9.7%) and Finland (-7.1%) underperformed.  Conversely, the MSCI Emerging Markets Index (unhedged) rose by 4.2%, outperforming unhedged developed markets (-1.1%) as the prospect of a potential Biden Presidency in the US renewed optimism for more stable trade relations.

Global bonds were flat for the month of October while Australian bonds posted positive returns. The Australian Dollar depreciated against the major currencies, including the US Dollar and the Japanese Yen, falling -2.0% and -2.9% respectively.