Monthly market update October '20
Global equity markets were broadly negative over October given the uncertainty surrounding the US presidential election and additional stimulus. Additionally, global COVID-19 cases have skyrocketed, particularly in the US, the UK and Europe. Given the spike in cases, several countries in the Eurozone have responded with tighter restrictions and reintroduced lockdowns. Conditions in Australia are increasingly positive, with COVID-19 case numbers minimal and the subsequent easing of restrictions in Victoria following a 16-week lockdown.
Markets were volatile during October in the lead up to the US presidential election. The US equity market fell over the month as agreement on an additional stimulus package could not be reached and the country recorded an uptick in COVID-19 cases (October saw the highest daily COVID-19 cases recorded in the US). The S&P 500 Composite returned -2.7% (in local currency terms).
US economic data was increasingly positive, with the US unemployment rate coming in at 6.9% in October (from 7.9% in September). The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) increased to 85 in October, topping September’s previous record high of 83, as the demand for housing continues. The Markit US Manufacturing PMI increased to 53.4 in October from 53.2 in September (any number above 50 signals an expansion in manufacturing activity compared to the previous month).
Chinese equity markets were marginally positive in October, with the Shanghai Composite Index returning 0.2% (in local currency terms). Chinese business conditions improved in October, with the Caixin Manufacturing PMI rising to 53.6 in October, from 53.0 in September (a reading above 50 indicates an expansion of the manufacturing sector compared to the previous month). The economic data in October marks the strongest monthly manufacturing activity over the 2020 calendar year to date, as the broader industry continues to gain momentum and show signs of recovery. The CNY appreciated 1.5% against the USD, with 1 USD buying 6.69 CNY at the end of October.
European equities, as measured by the Euro Stoxx 50 Index, returned -7.3% (in local currency terms) in response to tighter restrictions, including lockdowns such as those reintroduced in France, to contain spread of the virus. The Eurozone PMI Composite Output Index data came in at 50 in October, from 50.4 over September. The Eurozone Consumer Economic Sentiment Index remained stable over the month at 90.9, as a result of tightening restrictions across Europe (-100 indicates an extreme lack of confidence, 0 neutrality and 100 extreme confidence).
Elsewhere, equity market returns were broadly negative in October. The UK FTSE 100 index fared poorly, falling 4.7% over the month in local currency terms as tensions remain with a Brexit deal yet to be reached and the country headed for further lockdowns. The Japanese equity market (measured by the TOPIX index) also fell, returning -2.8% for the month. However, emerging markets (measured by MSCI Emerging Markets index) returned a positive 1.5% for the month in local currency terms, reflecting the stabilisation (or slowing) of cases in emerging countries, including a downward trend in India.
Australian shares, as measured by the S&P/ASX 300 Accumulation Index, returned 1.9% over the month, as coronavirus cases remain few and far between and as Victoria emerged from lockdown. There was significant divergence between sectors with information technology the best performing sector, returning 8.6%, followed by financials (ex. property trusts) and consumer staples returning 6.3% and 4.6% respectively. Industrials were the greatest detractors, returning -3.5%, followed by utilities (-1.5%) and materials (-1.1%). The Australian listed property market fell by 0.3% in October, as measured by the S&P/ASX 300 A-REIT Accumulation Index. The Manufacturing PMI (as measured by the Ai Group Australian Performance of Manufacturing Index) increased to 56.3 in October, up from the 46.7 recorded in September as production, employment, sales and exports expanded. The cash rate was unchanged during the month of October; however, the RBA indicated the possibility of further quantitative easing to come.
Major global bond yields were mixed in October, with the Australian 10-year Government bond yield falling by 2bps to 0.83%, the US 10-year Government bond yield increasing by 18bps to 0.86%, the UK 10-year Government bond yield increasing by 3bps to 0.26%, the German 10-year Government bond yield falling by 10bps to -0.62%, the Japanese 10-year bond yield increasing 3bps to 0.04% and the Italian 10-year Government bond yield falling 15bps to 0.72%.
The Australian dollar depreciated alongside the increased uncertainty, falling 1.9% over the month against the USD, and ending October at 70.3 US cents. Similarly, the Trade Weighted Index closed at 59.5 for the month, down from 60.7 for the month of September indicating depreciation 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