Market Reviews

Monthly Market Review – December 2020

How the different asset classes have fared: (As at 31 December 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

The ASX All Ords has had a strong start in December before the emergence of a new cluster of COVID-19 cases in Sydney’s northern beaches on 9 December 2020 saw markets tempering expectations of a swift recovery. Despite this, the ASX All Ords returned 1.75% in December 2020. Markets were buoyed by strong commodity prices with iron ore rising 20.0% over the month to be up an astounding 152.9% since its April lows. Strong demand from China and supply disruptions in Brazil were behind the price increases. The surge in commodity prices and overall weakness in the US dollar has seen the Australian dollar trade to $0.76, levels not seen since 2018.

Meanwhile, tensions between Australian and China continued to flare during December 2020, with China banning Australian coal exports and Australia taking up action with the World Trade Organisation. Given China’s high reliance on Australia’s iron ore exports, the impact is expected to be limited. In addition, the incoming Biden administration is expected to try and resolve the US/China tensions in a more diplomatic way, paving the way for Australia to resolve tensions with China too.

New global coronavirus cases continued to climb although at a slower pace. While the mortality rate in developed countries has dropped from 8.5% to around 2.0%, the number of deaths is approaching April highs and some hospitals are at or near capacity. Alarmingly, in the UK, a new strain of COVID-19 was discovered to be more infectious, though not necessarily more severe. This led to more than 40 countries suspending travel with the United Kingdom and a nationwide lockdown.  Thankfully vaccines are still expected to be effective on the new strain. Across the globe vaccines were rolled out, however, supply and transport issues meant the rate of roll out was below expectations. The vaccine rollout is not expected to help with the current wave but should significantly help the recovery in the second half of 2021.

With the rise in global coronavirus cases, major governments around the world continued to reiterate their support for the economy with the ECB and the US committing to stimulus support. The ECB increased its pandemic emergency purchase program from €1.35tn to €1.85tn and extended the program to March 2022. The US also passed a nearly $900bn stimulus bill. While not as large as many had expected the stimulus is big enough to hold off a recession.  Markets reacted positively to these announcements. Finally, after years of negotiation, the Brexit agreement was completed and signed between the UK and the European Union.

 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.

Monthly Market Review – August 2020

How the different asset classes have fared: (As at 31 August 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 gained in August as US shares recovered their losses and soared to new highs. The Australian dollar surged to nearly 74c by month-end as bearish sentiment drove the US dollar to multi-year lows. International shares also rose strongly in August but gains for unhedged investors were offset by a rise in the Australian dollar. Unlike July, emerging markets retraced some of their gains as fresh tensions between the United States and China sent Chinese stocks tumbling. Government bonds also gave back some of their gains as faith in vaccine trials fueled investor optimism and a rise in bond yields. Listed property and infrastructure also gained on rising optimism about the path of economic recovery but the rising Australian dollar offset gains for unhedged investors.

Cash and Fixed Income

Interest rates remained fixed near zero in August and central banks continued to use their balance sheet to hold down bond yields. The RBA also restarted its purchases of 3-year Australian Government Securities as Stage 4 restrictions in Victoria and new cases in NSW and Queensland impacted economic activity. The central bank has also revised its forecasts for the impact of COVID-19 and now predicts that unemployment will peak at 10%. At the same time, though, pharmaceutical companies and leading universities have now advanced vaccine trials to their third and final stage before potential approval. Bond yields rose moderately (and prices therefore fell) as investors priced in a potential resolution to the global pandemic that has sent yields tumbling across the fixed-income complex.

Australian Shares

The Australian share market gained in August as investors continued to crowd into IT and consumer discretionary stocks. Mining and healthcare stocks largely tracked the index. Unlike in July, though, mining stocks fell and listed property rose on investor optimism that a vaccine for COVID-19, which has seen valuations for shopping centres and office towers fall substantially, might be approved before the end of the year.

International Shares

International share markets soared in August as US shares recovered their losses from earlier in 2020 and closed at all-time highs. International shares continue to be led by US shares, especially investor optimism in the so-called FAANGM (Facebook, Apple, Amazon, Netflix, Google, Microsoft) universe of consumer technology stocks. Unlike in July, Japanese stocks rose strongly as a second wave appeared to gradually subside throughout the month. European stocks continued to underperform – the divergence between valuations in European and US shares is now at its highest level in almost a century.

Emerging Markets

Emerging markets experienced a mild sell-off in July as tensions between the US and China led to new measures from the United States. US President Donald Trump issued an executive order forcing Chinese technology company Bytedance to divest or sell its US operations, leading to a bidding war between US technology companies for its popular app Tiktok. As in developed markets, Chinese technology stocks dominate the emerging markets index. Tencent, Alibaba and Meituan now constitute 38% of the Chinese index and Chinese stocks make up a majority of the emerging markets index. Efforts by the US and other developed countries like Australia and the UK to restrict Chinese technology companies’ access to their markets has therefore had a negative effect on EM valuations.

The Australian Dollar

The Australian dollar rose to almost 74c in August driven mostly by a sell-off in the US dollar. Iron ore prices climbed to $120/ tonne as Chinese appetite for iron ore continued to grow. COVID-19 is still causing issues with supply chain issues in Brazil and other emerging-market iron ore producers, further supporting the price of the bulk commodity. The spread between Australian and US Government, 10-year securities also climbed to 28 basis points by the end of the month, further supporting the Australian dollar (because offshore investors can gain a secure income by exchanging US dollars for Australian dollars and buying local government securities).

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.

Monthly Market Review – July 2020

How 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.

Monthly Market Review – June 2020

How the different asset classes have fared: (As at 30 June 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 slightly more subdued in June than in April and May as the reopening of economies caused new outbreaks in the Americas, Middle East and India. Australian shares and the local currency rose, buoyed by authorities’ relative success at containing the local epidemic. International shares also rose modestly in June but gains for unhedged investors were offset by a rise in the Australian economy. Emerging markets rose more robustly as an economic recovery in China and successful containment of viral outbreaks in Asia raised investor confidence. Government bonds largely traded sideways as central banks around the world maintained ultra-low interest rates and asset purchases while credit spreads narrowed as the economic reopening continued. Listed infrastructure underperformed in June as investors priced in the effects of a pandemic with multiple waves on sensitive infrastructure assets like toll roads and airports.

Cash and Fixed Income

Interest rates remained fixed near zero in June and central banks continued to use their balance sheet to hold down bond yields. Investment-grade spreads narrowed as Federal Reserve purchases of bond ETFs (exchange-traded funds) drew in new investment and raised prices while government and high-yield bonds largely traded sideways.

Australian Shares

The Australian share market extended its rally with another gain of 2.34% in June. An increase in the ASX 200 index was largely driven by banks, IT and consumer stocks. Mining stocks underperformed the index as a whole as Brazilian mining supply gradually came back online. A new outbreak in Victoria towards the end of June placed some downward pressure on prices, as well as the Australian dollar as the state was forced to reintroduce selective lockdowns to contain the spread of COVID-19.

International Shares and Emerging Markets

International share markets continued to recover in June although the incremental improvement in valuations was smaller and accompanied by much greater volatility. As in May, the global economic reopening and a continuation of extraordinary fiscal and monetary support supported higher valuations, but new outbreaks nevertheless forced localized lockdowns or a delay in reopening.

Once again, though, US IT stocks outperformed even as news of a Facebook advertiser boycott briefly shook investors’ optimism in the mega-cap tech stocks. International shares are now trading around the same price-to-earnings ratio that they were before the pandemic. Emerging markets were also supported by new inflows and an investors’ growing appetite for risk after the sell-off in March.

The Australian Dollar

The Australian dollar continued to rise in June. However, the local currency trimmed rapid gains at the beginning of the month by the end of June as a new outbreak and some adverse economic data dampened investor sentiment. Iron ore prices remained steady as Brazilian miner Vale, which has been heavily impacted by the COVID-19 crisis in Brazil, gradually brought more supply to the market. The Australia/US interest rate differential (the difference between yields on 10-year US and Australian government bonds) has stabilized at around 25 basis points, which means that investors earn more from holding Australian government bonds. Along with a gradual increase in investors’ appetite for risk and Australia’s apparent success at controlling the coronavirus, the interest-rate differential helped the Australian dollar finish the month at just under 69c.

Monthly Market Review – May 2020

How the different asset classes have fared: (As at 31 May 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 continued to rally in May, continuing on from the momentum seen in April. Share markets, both in Australia and internationally, rose and the Australian dollar appreciated as risk sentiment improved. Government bond yields largely moved sideways over the month, while credit markets gradually rallied as investor confidence rose and central banks continued their support.

Cash and Fixed Income

Interest rates remained on hold in May, with central banks already having lowered rates as much as reasonably bearable. Bond markets generally traded sideways over the month. Credit markets rallied modestly particularly after the US Federal Reserve began buying credit exchange traded funds (ETF’s). There remains an ongoing debate about how effective central bank intervention will be, in the short term central banks can help support confidence and liquidity. In the longer term its solvency that counts, which will be driven more by the state of the economy, and less by central bank intervention.

Australian Shares

The Australian share market extended its rally with another gain of 5% in May which was welcome news by investors. To some extent this growth can be attributed to the Australian government getting the Covid-19 pandemic under control with markets looking forward to the prospects of a quick reopening of the economy.

We would offer some words of caution to those expecting significant additional gains in the near term from today’s levels. The Australian share market is trading on a rich valuation multiple relative to its history. Additionally there remains considerable uncertainty about the scale and scope of the recovery in the economy, even with a promising beginning.

Within the share market we witnessed a shift from healthcare and tech and back to the banks as well as some of the more economically sensitive sectors.

International Shares

International share markets continued to recover in May, supported by the substantial and coordinated fiscal and monetary response to the coronavirus globally and the prospect for social distancing measures to be eased in a number of countries.

As with the Australian share market, it should be noted that a lot of good news is already in the price with valuation levels high relative to longer term historical norms.

While Australia has handled the Covid-19 crisis reasonably well, the same cannot be said for America, home of the world’s largest and most important share market. Unfortunately it seems likely that there will be a second wave of infections as the US economy opens up. This fact, along with the potential for volatility associated with the upcoming US elections is keeping us a little cautious about both US share market generally.

The Australian Dollar

The Australian dollar continued to rally in May. The Australian dollar was also supported by resilient iron ore prices and a widening in the Australia/US interest rate differential (with the Australian 10-year government bond yield now higher than the US 10-year government bond yield).

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.