Monthly market update December '20
December 2020 Monthly Commentary
Global equity markets had another positive month in December to finish the year, although returns across the board were much more subdued compared with November. Whilst COVID-19 cases in many countries continued to climb, particularly in the US and Europe, the beginning of vaccine roll-outs in some countries provided optimism to markets, as did steadily improving economic data. Overall global equities, as measured by the MSCI World ex Australia Index (hedged to AUD), returned 3.4% for the month. This brought calendar year returns to 10.6%, a fascinating result when considering the severe market falls experienced in the first quarter of the year. Whilst relative to the rest of the world conditions in Australia remained positive, a COVID-19 outbreak in NSW during the month, which has now spread to Victoria, provided cause for concern locally and resulted in a number of states closing their borders once again.
The US equity market had another strong month, with the S&P 500 Composite returning 3.8% (in local currency terms). During the month, the Electoral College voted for Joe Biden as the next US President, ahead of formal ratification by Congress early in January, with the presidential inauguration ceremony scheduled to take place on January 20, 2021. Economic data from the US continued to be positive, with the Markit US Manufacturing PMI marking its 8th consecutive monthly increase, improving to 57.1, from 56.7 in November (any number above 50 signals an expansion in manufacturing activity compared to the previous month). The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) buckled its recent trend of increases, falling to 86 from its record high of 90 (although remaining well above 50, which indicates more builders view sales conditions positively).
Chinese equity markets were also positive in December, with the Shanghai Composite Index returning 2.4% (in local currency terms), although the Caixin Manufacturing PMI fell to 53 in December, from 54.9 in November (a reading above 50 indicates an expansion of the manufacturing sector compared to the previous month). The CNY appreciated by 0.8% against the USD, with 1 USD buying 6.53 CNY at the end of December. Emerging markets, as measured by the MSCI Emerging Markets Index, returned 2.5% for the month (in AUD unhedged terms), despite many developing nations continuing to struggle to reduce the spread of the virus.
European equities, as measured by the Euro Stoxx 50 Index, returned 1.8% (in local currency terms), despite most of Europe being in some form of lockdown during the month. The Eurozone PMI Composite Output Index increased to 49.1 in December, from a reading of 45.3 in November, indicating a small decline in business activity. Whilst still signalling a lack of confidence in the economy, the Eurozone Consumer Confidence Index improved in December, coming in at -13.9, compared to -17.6 in November.
Australian shares, as measured by the S&P/ASX 300 Accumulation Index, had another positive month to close out 2020, returning 1.3%. After a positive beginning to the month on the virus front, with the South Australian cluster officially under control, Australia was impacted by another potential outbreak - this time starting in the northern beaches of Sydney. Whilst cases remained at relatively low levels for most of the month, tough restrictions were enforced in some areas of the state, whilst a number of other states closed their borders once again to certain areas. Rising iron ore prices saw Materials be the strongest performing sector for the month, returning 8.8%, whilst Information Technology (+8.6%) and Consumer Staples (+2.2%) were the next highest performers. The worst performing sector this month was Utilities (-5.4%), followed by Health Care (-4.7%) and Industrials (-2.2%). The Australian listed property market returned 0.6% in December, as measured by the S&P/ASX 300 A-REIT Accumulation Index.
Bond yields in Australia and the US rose over the month, with the Australian 10-year Government bond yield rising by 7bps to 0.98%, and the US 10-year Government bond yield also rising by 7bps to 0.91%. Other major bond yields fell or remained broadly flat. The UK 10-year Government bond yield fell by 11bps to 0.20%, the Japanese 10-year bond yield fell 1bps to 0.02%, and the German 10-year Government bond yield fell very marginally to end December at -0.58%.
The Australian dollar finished the year strongly, increasing 4.5% over the month against the USD, and ending December at 76.9 US cents. Similarly, the Trade Weighted Index closed at 63.4 for the month, up from 61.5 in November, indicating appreciation of the AUD against the currencies of its major trading partners.
Note: This investment commentary does not constitute advice. All investment figures quoted relate to before-tax performance of the relevant industry benchmark. © 2020 Willis Towers Watson.
This information is general information only and does not take into account your individual objectives, financial situation or needs. Accordingly, before taking any action, you should consider whether it is appropriate to you, having regard to your objectives, financial situation and needs. You should obtain a copy of legalsuper’s Product Disclosure Statement (PDS) which is available by contacting legalsuper or via its website at legalsuper.com.au before making a decision. Past performance is not a reliable indicator of future performance