Investment update for September 2020
The recovery of global equity markets showed signs of slowing in September, following a long period of steady gains since late March. A resurgence of COVID-19 cases across developed markets, the continued uncertainty around virus containment and a vaccine has weighed on investor sentiment.
In equities, emerging market and global small caps outperformed developed markets for the month. The latest global services Purchasing Manager Index (PMI) data was reported at 51.9. Although this is below the 2019 average of 52.2, it is above the 50-threshold suggesting that services sector activity is improving though subdued. Improving daily seaborne shipping volumes over the month is also evidence of the continued recovery of global goods trade. Although still accommodative, global monetary support has slowed. In the US, the Federal Reserve, announced a policy shift to average inflation targeting.
Domestically, the Reserve Bank of Australia maintained its current policy settings but discussed the available options to ease further if needed. These options include purchasing longer-dated government bonds than the 3-year currently targeted; intervening in the foreign currency market to lower the Australian dollar; lowering the cash rate further without going negative; and adopting negative interest rates.
In the US, the upcoming presidential election, political deadlock on further economic stimulus and ongoing high rates of COVID-19 infections continue to drive economic uncertainty. For the S&P 500, all sectors recorded falls over the month with IT and Communication Services the worst performers. Consumer confidence indicators for September have increased but remain below pre-pandemic levels and housing market data showed signs of recovery. The US labour market continues to improve with more jobs being added. As a result, the unemployment rate fell from 8.4% to 7.9%.
In Europe, COVID-19 cases continued to spike in several countries including France, Spain and the UK prompting some governments to reintroduce restrictions. Brexit negotiations have stalled due to the introduction of the Internal Market Bill which seeks to modify terms of trade between UK and Northern Ireland. European equity markets performed poorly over the month.
China’s economy was able to bounce back above pre-COVID-19 levels in the second quarter allowing for a positive annual growth figure. This was driven by successfully mitigating the virus so far and a sharp rebound in production and infrastructure investment aided by policy. Notwithstanding that, Chinese equity markets performed poorly over the month.
Australia has begun to recover from its earlier contraction although the rate of recovery will be uneven due to Victoria’s second-wave outbreak.
Government bonds performed strongly over the month as bonds yields fell. Corporate bonds did not perform as positively, likely influenced by the decline in the equity markets in September. The AUD depreciated in September against most major currencies with the exception of the volatile GBP due to the Brexit uncertainty. In commodities, iron ore prices are slightly lower but remains high compared to the start of the year. Increased Chinese demand to support their recovery and constrained supply in Brazil have led to the higher iron ore price.
Listed property performed negatively in September, although Australian listed property was slightly less negative than its global counterpart. Global listed infrastructure was slightly negative over the month while Australian listed infrastructure was slightly positive.
Please view our full investment commentary brought to you by our advisers – Frontier – for a more in depth analysis of market conditions this month. The monthly commentary can also be viewed on YouTube.
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