Weekly Market Update – 30 Nov 2020

The ASX200 will today record its best monthly return since the index was created in 2000.

Quite unbelievable to think November’s equity market returns are going to post gains of +12%.

Whilst no one could have predicted the rapid pace at which global equity markets would recover from their March lows and many may still argue that share market valuations far exceed economic fundamentals, the important reminder here is that we are long-term investors by nature.

Equity markets have long traded up, down and sideways and whilst volatility and market dislocation can create value opportunities for investors so too does playing the long game and staying invested.

One of my favourite quotes from legendary investor Warren Buffet reads “the best way to make money is to make it slowly.”

Sure, there are cunning investors out there who doubled down on positions in March when markets seemed stretched and oversold. However, there is just as much merit in holding on to existing positions and riding out the volatility.

Those who raised cash levels throughout the March lows crystallised their losses and left themselves no opportunity to recapture any of the underperformance if markets rallied.

Markets did just that.

After falling 36% peak-to-trough the ASX200 has now recaptured 28% of that initial fall – staying invested and recognising that short term gyrations in markets are normal has rewarded the long-term investor and in this instance has generated a return on investment of 28%.

It is easier said in hindsight but we like to think the lessons of 2020 serve as an important reminder to investors to have long term objectives and investment goals.

To think the ASX200 is only down -1% in 2020 is a pretty remarkable outcome.

Stay invested over the long term and make money slowly.

The AUD

The Australian dollar climbed to a near 2-year high last week trading just short of US74c.

Part of the reason for the AUD strength vs the USD has been the ability of Australia to contain the spread of the virus compared to the United States which is seeing daily COVID-19 infections surpass 200,000 with the death toll nearing 270,000.

Recent strength in commodity prices has been a factor with the iron ore spot price reaching $US127/tonne last week whilst copper and other industrial metals continue to trade well.

Another major reason behind the AUD strength is USD weakness.

Whilst the US economy continues to recover the growth rate is starting to slow. The consumer sentiment index fell to 77 in a preliminary November reading from 81.8 marking its first decline in four months and hitting its lowest point since August.

Additionally, Q3 GDP in the US was worse than expected and jobless claims for the week just ended rose to 778,000 which was above expectations.

It’s a big week of data this week with the RBA board meeting on Tuesday, Q3 GDP data (expected to show a 3-4% bounce from the June quarter’s -7% fall) and US nonfarm payrolls due on Friday (expected to show unemployment at 6.8%).

Further vaccine progress

Pharmaceutical company AstraZeneca confirmed that late-stage trials showed its coronavirus vaccine was up to 90% effective providing further hope that the race to find a vaccine is heating up.

AstraZeneca also claimed its vaccine is currently proving to be cheaper and easier to distribute than some of its rivals with results based on trials in the UK and Brazil of a vaccine developed by Oxford University.

Understandably travel and transport sectors have been major beneficiaries of the last few weeks’ vaccine developments.

Flight Centre (FLT), Webjet (WEB) and Corporate Travel (CTD) all rose 6-7% last week while Qantas (QAN) bounced +5%. All four stocks have rallied between 30-60% in November.

The move towards a ‘global reopening’ extends beyond just tourism stocks.

Crude oil prices are nearing their highest levels since early March having rallied +27% in November and another +5% last week.

Progress on the vaccine front has led to an increased demand for oil with lockdowns restricting mobility and movement likely to be lifted sooner rather than later should vaccine trials continue to show promising results.

ASX

Energy stocks (+6%) and miners (+3%) drove the ASX +1% higher last week on the back of strong gains in the price of oil and other major commodities.

BHP (BHP) posted +7% gains and Fortescue (FMG) +10% on improved commodities whilst Pendal Group (PDL) jumped +14% after head of defensive strategy and bonds, Vimal Gor, announced PDL would be investing in Bitcoin.

Other positive performers last week included Healius (HLS), formerly called Primary Health Care, which rallied +4.5% after selling its medical centres business to BGH Capital for $483m.

The transaction simplifies the HLS portfolio and allows HLS to focus on market leading diagnostics and day hospital businesses whilst reducing net debt and freeing up capital for future investment.

Petroleum operator Ampol (ALD) climbed +8% after announcing a $300m off-market buyback following the sale of its convenience retail property portfolio for $635m.

ALD a 49% stake in its freehold retail convenience sites to Charter Hall and Singapore’s GIC, delivering net cash proceeds of $635 million compared to prior guidance of $612 million.

Tensions with China

Unfortunately, it was not all positive with news the Chinese government will place tariffs on all Australian wine imports.

The tariffs which began on Saturday and range from between 107% – 212% are a devastating blow to Australia’s wine export industry of which China accounts for nearly 40% and is by far the biggest global market target.

Essentially these tariffs double to triple the cost of Australian wine in China rendering it significantly less viable in what is a hugely popular Chinese market.

Disappointingly the tariffs follow on from recently implemented tariffs on Australian beef and barley and points to a further deterioration in diplomatic relations between the two nations.

Winemaker and ASX listed giant Treasury Wine Estates (TWE) fell -11% on Friday before entering a trading halt which it expects to lift on Tuesday this week once it has had an opportunity to update its shareholders on the impact the these tariffs are likely to have on its business.

Looking ahead

Monday 30th November – Friday 4th December 2020

  • Monday: AU Business Inventories Q3, Private Sector Credit (OCT), CN Non Manufacturing PMI (NOV)
  • Tuesday: AU RBA Interest Rate Decision, Group Manufacturing Index (NOV), CN Caixin Manufacturing PMI (NOV)  
  • Wednesday: AU GDP Growth Rate Q3, Capital Expenditure Q3, US ISM Manufacturing New Orders (NOV), Construction Spending (OCT)
  • Thursday: AU Balance of Trade (OCT), Home Loans (OCT), US Initial Jobless Claims (NOV)
  • Friday: US Non Farm Payrolls (NOV), Valance of Trade (OCT)

Friday 27th November, 5pm values

 IndexChange%
All Ordinaries 6817+77+1.1%
S&P / ASX 2006601+62+0.9%
Property Trust Index1466+13+0.9%
Utilities Index6986+108+1.6%
Financials Index5551+94+1.7%
Materials Index14610+450+3.2%

Friday 27th November, closing values

 IndexChange%
U.S. S&P 5003638+80+2.2%
London’s FTSE6368+17+0.3%
Japan’s Nikkei26645+1118+4.4%
Hang Seng26895+443+1.7%
China’s Shanghai3408+30+0.9%

Key dividends

Monday 30th November – Friday 4th December 2020

  • Monday: Div Ex-Date – Metrics Master Income Trust (MXT), Metrics Income Opportunities Trust (MOT)
  • Tuesday: Div Ex-Date – Aristocrat Leisure (ALL), Legg Mason Australian Bond Fund (BNDS), NABPB (NABPB)
  • Wednesday: Div Ex-Date – BENPF (BENPF), SUNPF (SUNPF), SUNPG (SUNPG), SUNPH (SUNPH)
  • Thursday: Div Ex-Date – Pendal Group (PDL), Fisher & Paykel (FPH)
  • Friday: Div Ex-Date – CBAPD (CBAPD), CBAPE (CBAPE), CBAPF (CBAPF), CBAPG (CBAPG), CBAPH (CBAPH), CBAPI (CBAPI) Div Pay-Date – WBCPF (WBCPF)

Contact

Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750
Jordan Lisle – Dealer & Research Assistant(03) 8825 4749

If you would like to discuss your situation, please speak to your adviser or email clientservices@primefinancial.com.au

Mark JohnsonT: (03) 8825 4738Cameron MorcherT: (03) 8825 4737
Livio Caiolfa T: (03) 8825 4748Michelle BromleyT: (03) 8825 4751
Marcus AingerT: (02) 9134 6292Nicole LewisT: (03) 8825 4734
Dylan CresswellT: (03) 8825 4707Garry FrizzoT: (07) 4019 2410
Michael CooperT: (07) 3010 8597Nicholas MillerT: (03) 8825 4722
Jarrod RoddaT: (03) 8825 4729

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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