September In Review: First Decline In 12 Months

This story features BEACH ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: BPT

Losses in the materials sector drove a -1.9% total decline for the ASX200 in September, putting an end to eleven consecutive months of gains for the benchmark.

-The ASX200 retraced -1.9% (total return) during September
-Value outperformed Growth
-Australian 10-year bond yield increased by 34 basis points
-Iron ore prices slumped by -25.2%, following a -14.3% fall in August 

By Mark Woodruff

After eleven consecutive months of positive performances, the ASX200 closed out September -1.9% lower on a total return basis (including dividends).

Equity markets had to contend with negative sentiment around China, more hawkish Federal Reserve commentary and surging energy prices. In local currency terms, the MSCI World Developed Market World index declined by -3.6%, largely due to a -4.65% fall in the S&P500 in the US. The equivalent Emerging Market index declined by -2.8%.

Global bond yields surged, with 10-year US yields climbing by 24bps to 1.53%, which contributed to the -5.3% fall for the Nasdaq; its worst month since March 2020. The Australian 10-year bond yield increased by 34bps to 1.49%.

Over the course of 2021, market momentum has switched between 'value' and 'growth' on a number of occasions but September saw value stocks relative outperforming by 1.9%. However, it was not a momentum switch across the board with the Materials sector falling by -9.3%, while 'growth' sectors Health Care and Information Technology decreased by -4.9% and -3.9%, respectively.

Meanwhile, the Energy sector rose by 16.7%, Utilities by 2.5% and Financials increased by 1.6%. Hence, it can be concluded the outperformance of 'value' in Australia was broadly carried by the rally in energy stocks, with financials providing additional support.

In large swings on commodity markets, iron ore prices slumped by -25.2% to $US118.5/t, while hard coking coal, thermal coal and uranium prices rose by 39.9%, 25.1% and 24.4%, respectively.

ASX100 best and worst  

September's best performing stocks were Beach Energy ((BPT)) which rose 42.4%, AusNet Services ((AST)) up 30.2%, Woodside Petroleum ((WPL)) 22.5%, Altium ((ALU)) 19.6%, Santos ((STO)) 18.5% and Oil Search ((OSH)) which climbed 17.4%.

On the flipside, the worst performing were Fortescue Metals Group ((FMG)), which fell by -20.7%, Mineral Resources ((MIN)) -18.4%, Magellan Financial Group ((MFG))  -18.4%, BlueScope Steel ((BSL)) -17.1%, Appen ((APX)) -16.6% and BHP Group ((BHP)) which fell by -12.2%.

Small Ordinaries best and worst

The Small Ordinaries lost -2.1% (total return) in September, with Energy rising by 15.7% and Communication Services by 1.3%, while Materials crumbled by -7.3% and Information Technology retreated by -4.6%.

The outperformers were Flight Centre Travel Group ((FLT)) increasing by 30.8% FAR Ltd ((FAR)) 27.8%, Freedom Foods ((FNP)) 23.7%, Carnavon Petroleum 23.5% ((CVN)) Cooper Energy ((COE)) 20% and Ioneer ((INR)) jumped 14.5%.

Meanwhile, De Grey Mining ((DEG)) fell by -19.6%, Dacian Gold ((DCN)) -18.7%, Champion Iron ((CIA)) -18%, Aurelia Metals ((AMI)) -15.5%, Codan ((CDA)) -15.1% and Capricorn Metals ((CMM)) declined by  -13.8%.

Banks

Banks outperformed the broader market by around 4% in September as Value stocks gained from a brusque switch in market momentum, as rising bond yields negatively impacted healthcare and technology names.

Leading the major banks was Commonwealth Bank of Australia ((CBA)) which climbed 4.2%, ANZ Bank ((ANZ)) 1.1%, Westpac Bank ((WBC)) 0.7% and National Australia Bank ((NAB)) up by 0.4%. The share prices of both Bank Of Queensland ((BOQ)) and Bendigo & Adelaide Bank ((BEN)) fell by -1.1% and -3.4% during the month.

Morgan Stanley remains positive on banks in Australia on relative valuation, a resilient earnings outlook, buybacks and the potential for rising dividends.

On the other hand, Macquarie sees downside risk for pre-provision earnings and limited sector appeal in the longer term, though, in the short term, the broker says the sector may enjoy the benefit from rising bond yields and reasonable relative valuations versus Industrials.

Overall, Macquarie has a neutral view on the sector, prefers National Australia Bank and cautions over the valuation premium attached to Commonwealth Bank of Australia.

REITs

REITs were down -2.18% over the month, underperforming the broader ASX200 by -0.3%.

Credit Suisse remains generally positive on the sector and reiterates that balance sheets remain in good shape. However, as share prices have rallied over recent months, the broker now has generally modest expectations for returns.

On an individual REIT level, the broker is attracted to the low gearing and outlook for earnings growth for the fund managers Charter Hall Group ((CHC)) and Goodman Group ((GMG)).  The broker also sees relative value in the large-cap diversified names of Stockland ((SGP)) and Mirvac Group ((MGR)), while Charter Hall Retail REIT ((CQR)) is the preferred exposure for retail.

Outperformers over September included those REITs with retail exposure including Charter Hall Retail REIT, Scentre Group ((SCG)) and GPT Group ((GPT)), while Goodman Group and Centuria Industrial REIT ((CIP)) underperformed following previous sharp outperformance.

Asset Managers – for the September quarter

In a mark-to-market exercise for ASX-listed asset managers under its coverage, Jarden awards both market and foreign exchange (FX) marks by determining regional exposures.

While slightly weaker markets were a setback for funds under management (FUM) balances overall, foreign exchange tailwinds helped managers with US exposure, explain the analysts.

The broker estimates an overall -1.7% FUM mark for Janus Henderson Group ((JHG)), driven by exposure to UK/European markets. Meanwhile, a sizeable exposure to US markets also impacted FUM for Magellan Financial Group ((MFG)) though this was somewhat alleviated by FX tailwinds.

FUM marks across other asset managers were more moderate, with Perpetual ((PPT)) up by 1.2% after benefitting from the falling Australian dollar, given its Barrow Hanley acquisition.

Jarden makes limited changes to EPS estimates and 12-month target prices, and maintains ratings as follows: Pendal Group ((PDL)) Buy, Neutral for Challenger ((CGF)) and Underweight for Magellan Financial Group, Perpetual, Janus Henderson Group and Platinum Asset Management ((PTM)).

Commodities

The CRB Commodity Index increased by 4.9% over September to close at 229.

Brent crude oil rose 7.6% to US$78.5/bbl.

Iron ore prices slumped by -25.2% to US$118.5/t.

The gold price declined by -3.1% to US$1,743/oz, while in base metals aluminium rose 5.2%, copper fell -6.1% and nickel slumped by -8.2%.

A special mention goes to hard coking coal, thermal coal and uranium whose prices rose by 39.9%, 25.1% and 24.4%, respectively.

Interest rates

The Australian 10-year bond yield increased by 34bps to 1.49%, while the 10-year US yields also climbed by 24bps to 1.53%.

Foreign Exchange

The US Dollar Index (DXY), a measure of the value of the US Dollar relative to a basket of foreign currencies, closed up 1.7% in September at 94.23.

The Australian dollar declined by -1.2% during the month to close at US72.23c.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms