Monthly market update March '20
March began on a volatile note amidst intensifying concerns around the coronavirus pandemic and the impact of measures taken to slow the spread of the virus. As the month progressed, global equity markets plunged, and liquidity dried up in credit markets as case numbers spiked in Europe, the US and the rest of the world. As the global economy was brought to a halt by strict lock down measures, governments and central banks responded accordingly with extraordinary levels of stimulus to support growth. The combined stimulus lifted investor sentiment towards the end of the month, resulting in an equity market rebound that clawed back some of the month’s steep losses. By the end of March, the total number of recorded global coronavirus cases had increased from 86,604 at 29 February to 858,361, an increase of around 890%. The oil price crashed in March amidst reduced activity from lock-down measures and the breaking down of the supply agreement between OPEC and Russia.
The US equity market experienced a sharp correction in March, with the S&P 500 Composite returning -12.4% (in local currency terms) as the country became the new epicentre of the pandemic. The Federal Reserve attempted to stabilise markets by cutting rates by 0.5% early in March, before making another emergency cash rate cut in the middle of the month, reducing interest rates by a further 1.0% to bring the target range down to just 0% to 0.25%, and then announcing quantitative easing with a US$700 billion program. A spending package worth US$2 trillion was signed into law which consists of payments to businesses and individuals, loans, tax concessions, unemployment benefits and more. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) fell to 72 from 74 in February. The Markit US Manufacturing PMI fell to 48.5 in March from 50.7 last month, reflecting the start of a contraction in the manufacturing industry as a result of weak demand and employment cuts due to the coronavirus.
The Chinese equity market rebounded early in March as the situation appeared to be stabilising with a decline in new cases, however, it did not completely escape the global sell off, with the Shanghai Composite Index declining by 4.5% (in local currency terms) for the month. The Caixin Manufacturing PMI bounced back from 40.3 in February, to 50.1 in March, indicating a recovery in business conditions as China began to get the virus under control. The USD appreciated against the CNY over the month by 1.29%, now buying 7.08 CNY.
European equities, as measured by the Euro Stoxx 50 Index, returned -16.2% over the month (in local currency terms) as coronavirus case numbers and the death toll soared throughout Europe, with Italy and Spain particularly badly affected. The Eurozone PMI Composite Output Index dropped to an all-time low of 29.7, down from 51.6 in February. The Eurozone Consumer Economic Sentiment Index fell by a record 5 points over the month to -11.6 from -6.6 in February (-100 indicates an extreme lack of confidence, 0 neutrality and 100 extreme confidence).
The Australian equity market similarly fell sharply over the month, and underperformed global equities, with the S&P/ASX 300 Accumulation Index posting a -20.8% return. All sectors lost ground for the second successive month, with the least impacted sectors being Consumer Staples (-3.5%), Healthcare (-5.6%) and Utilities (-6.7%) and the sectors most impacted being Energy (-37.6%), Financials (-27.7%) and Consumer Discretionary (-26.4%). Over the course of the month, the RBA cut cash rates to a record low of 0.25% and also announced its first ever quantitative easing program – to buy as many bonds as necessary to target a three-year bond yield of 0.25%. The Morrison Federal Government also announced over $200 billion in fiscal stimulus to support the economy. To most investors’ surprise, the AIG Australian Manufacturing PMI jumped to 53.7 from 44.3 in February as consumer demand for essentials and groceries increased in preparation of the nation-wide lockdown measures. The NAB Business Confidence Index fell over the month, decreasing to -4 from -1. The Australian listed property market fell by 35.2%, as measured by the S&P/ASX 300 AREIT Accumulation Index, underperforming the broader market index by 14.3%.
Major global bond performance was mixed in March, as the Australian 10-year Government bond yield fell by 5bps to 0.81%, the US 10-year Government bond yield fell 43bps to 0.70% and the UK 10-year Government bond yield fell by 9bps to 0.36%. However, the 10-year German Government bond yield rose 16bps to end the month at -0.46%, whilst, the Japanese 10-year bond yield also rose, increasing by 17bps to finish the month at 0.02%.
The Australian dollar depreciated by 6.0% against the USD over the month, finishing at 61.4 US cents, down from 65.3 US cents. The Trade Weighted Index closed at 54.7 for the month, down from 57 at the end of February, signalling a steep depreciation in 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