Monthly Market Review – July 2020
VIEW PDFHow the different asset classes have fared: (As at 31 July 2020)
1 Bloomberg AusBond Bank 0+Y TR AUD, 2 Bloomberg AusBond Composite 0+Y TR AUD, 3 Bloomberg Barclays Global Aggregate TR Hdg AUD, 4 S&P/ASX All Ordinaries TR, 5 Vanguard International Shares Index, 6 Vanguard Intl Shares Index Hdg AUD TR, 7 Vanguard Emerging Markets Shares Index, 8 FTSE Developed Core Infrastructure 50/50 NR AUD, 9 S&P/ASX 300 AREIT TR, 10 FTSE EPRA/NAREIT Global REITs NR AUD
Financial markets were mixed in July as a sell-off in the US dollar and promising earnings reports from US technology giants fueled investor enthusiasm. However new COVID-19 outbreaks across the world undermined faith in the economic recovery. The Australian dollar surged to US 72c by month-end as bearish sentiment drove the US dollar to multi-year lows. International shares also rose strongly in July but gains for unhedged investors were offset by a rise in the Australian dollar. As in June, emerging markets also enjoyed robust gains as a sell-off in the US dollar eased financial conditions in developing countries and investors bought into Chinese technology companies that are likely to benefit from changes to commerce during the global pandemic. Government bonds largely traded sideways as central banks around the world maintained ultra-low interest rates. International bond yields fell (and prices therefore rose) in large part because new viral outbreaks dampened faith in the economic recovery from COVID-19. Small gains in listed infrastructure and global listed property were offset for unhedged investors by the rising Australian dollar.
Cash and Fixed Income
Interest rates remained fixed near zero in July and central banks continued to use their balance sheet to hold down bond yields. International and Australian bonds rallied as a resurgence of COVID-19 cases in Australia and overseas renewed fears of deflation and a prolonged downturn. The RBA kept rates fixed close to zero but allowed rates on 3-year Australian Government Securities to float above their target of 0.25% during July (rates peaked at 0.28% in the middle of the month). The RBA has subsequently pledged to restart its purchases as a new lockdown in Victoria and the closure of state borders placed new pressure on the Australian economy.
Australian Shares
The Australian share market was relatively subdued in July, returning 0.95% for the month. New restrictions on domestic movement following the outbreak in Victoria and new clusters in NSW have set back the clock for the economic recovery. The RBA has revised its estimates for the Australian economy and now expects unemployment to peak at around 10%.
The increase in the ASX 200 index was largely driven by mining and technology stocks. Mining stocks outperformed as Chinese stimulus buoyed prices in international markets and the IT sector strengthened as investors gain faith in the long-term beneficial impact of COVID-19 on e-commerce providers. Healthcare and bank stocks dragged in July as a second wave of infections in Victoria and NSW undermined recent gains and undermined faith in the recovery.
International Shares
International share markets gained momentum in July as strong earnings reports from US technology companies fueled a surge in prices and renewed investor optimism in the so-called FAANGM (Facebook, Apple, Amazon, Netflix, Google, Microsoft) universe of consumer technology stocks. The S&P 500 finished the month strongly enough to offset falls in Europe and Japan’s equity markets.
Emerging Markets
Emerging markets were also supported by new inflows and investors’ growing appetite for risk. As in developed markets, Chinese technology stocks like Tencent and Alibaba have attracted significant new investment as investors look for companies that are likely to gain from the global pandemic.
The Australian Dollar
The Australian dollar rose to 72c in July in large part driven by a sell-off in the US dollar. A worsening COVID-19 outbreak in Victoria and news that Australian consumer prices had fallen at the fastest quarterly rate since 1931 failed to dampen investor sentiment. Iron ore prices climbed more than 10% as Chinese stimulus fueled new demand for Australian bulk commodities.
Disclaimer
The information contained in this material is current as at date of publication unless otherwise specified and is provided by ClearView Financial Advice Pty Ltd ABN 89 133 593 012, AFS Licence No. 331367 (ClearView) and Matrix Planning Solutions Limited ABN 45 087 470 200, AFS Licence No. 238 256 (Matrix). Any advice contained in this material is general advice only and has been prepared without taking account of any person’s objectives, financial situation or needs. Before acting on any such information, a person should consider its appropriateness, having regard to their objectives, financial situation and needs. In preparing this material, ClearView and Matrix have relied on publicly available information and sources believed to be reliable. Except as otherwise stated, the information has not been independently verified by ClearView or Matrix. While due care and attention has been exercised in the preparation of the material, ClearView and Matrix give no representation, warranty (express or implied) as to the accuracy, completeness or reliability of the information. The information in this document is also not intended to be a complete statement or summary of the industry, markets, securities or developments referred to in the material. Any opinions expressed in this material, including as to future matters, may be subject to change. Opinions as to future matters are predictive in nature and may be affected by inaccurate assumptions or by known or unknown risks and uncertainties and may differ materially from results ultimately achieved. Past performance is not an indicator of future performance.
