August In Review: Eleventh Month Of Gains

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Gains in the Technology sector spurred a 2.5% total gain for the ASX200 in August, ensuring the eleventh consecutive month of gains for the benchmark.

-The ASX200 total return was 2.5% during August
-Technology was the best performing sector while Resources dragged
-Defensive stocks outperformed Cyclicals
-Iron ore prices fell by -14.3% in August

By Mark Woodruff

Gains in Information Technology led the ASX200 to a 2.5% total return (including dividends) for August, completing an eleventh consecutive month of gains for the Australian benchmark.

This compares to a rise of 3.04% for the S&P500 and 2.9% for the Nasdaq100 technology index. The MSCI World Developed markets index rose 2.5% in US dollar terms, just underperforming the Emerging Markets World index which climbed 2.6%. Japan was the best performed country, rising by 3.1%.

Back in Australia, Defensive stocks outperformed Cyclicals by 4.6%, while Growth outperformed Value by 5.6%. Technology was the best-performing sector rising by 17%, followed by Staples up 6.9% and Health Care climbed by 6.8%. Materials and Energy were the notable laggards for the month falling by -7.3% and -3.9%, respectively.

Financials were the largest contributor to overall returns for the month, whilst value was lost through the Materials sector.

At a stock level, CSL ((CSL)) had the most positive impact on the ASX200, while BHP Group ((BHP)) was the largest detractor.

Emerging Companies

The Small Ordinaries Accumulation Index rose 5% in August, outperforming the ASX100 by 2.7 percentage points.

The Small Industrials Index increased 6.1%, while the Small Resources Index added 0.7%.

Telecommunication services was the best performing sector, rising 10.9%, followed by Financials 9.5% and Consumer Staples, up by 8.9%. Industrials was the worst performing sector over the month, falling by -0.2%, followed by an unchanged materials and consumer discretionary rising by 3.6%.

Major banks/Financial ex banks

The major banks outperformed the ASX200 by an average of around 1.3% in August.

National Australia Bank ((NAB)) rose by 6.9%, Westpac Bank ((WBC)) 5.3% and Bank of Queensland ((BOQ)) increased by 4.9%. Relative underperformance came from ANZ Bank ((ANZ)) up by 0.5% only and Bendigo & Adelaide Bank ((BEN)) which fell -2.8%.

Morgan Stanley remains positive on the major banks, given improving revenue growth and resilient credit quality despite current lockdowns. Other attractions include large buybacks, rising dividends and relative valuation appeal.

Financials Ex-Banks also outperformed as Afterpay ((APT)) rose 39% on the proposed acquisition by US-listed Square Inc. Meanwhile, Magellan Financial Group ((MFG)) went down -11% following continued soft fund performance going into July and greater-than-expected associate losses in its FY21 result.

Australian technology sector

In the month of August, technology stocks outperformed the broader market, with the ASX technology index rising 13.7%.

In the US, the Nasdaq100 technology index rose 2.9%, while WAAAX stocks in Australia rose by 28.1%.

The strong month for the WAAAX names came as a result of the Afterpay ((APT)) acquisition, a strong WiseTech Global ((WTC)) result, as well as Xero ((XRO)) shares reaching for an all-time high.

The ASX All Technology Index was up 13.7% while the ASX100 only rose by 1.7%. Within the technology index, Novonix ((NVX)) went up 59%, WiseTech Global 51% and ReadyTech ((RDY)) by 40%. On the downside, Harvest Technology Group ((HTG)) fell -21%, Tesserent ((TNT)) -20% and 4DS Memory ((4DS)) went down -17%.

Amongst smaller technology names under coverage, Credit Suisse sees more upside for Life360 ((360)) and cautions that Audinate Group ((AD8)) has some near-term risk from global chip shortages.

Consumer sector

The Consumer sector performance was robust in August, with Staples rising 6.5% and Discretionary up by 3.1%. Macquarie believes forward earnings momentum is slowing across the sector.

Current trading commentary around global supply chain disruption, rising input costs and uncertainty around the resumption of in-store trading has dented the near-term outlook.

Following the August reporting season, the broker maintains its Outperform ratings for Coles Group ((COL)), Harvey Norman ((HVN)) and Webjet ((WEB)).

Within Staples, Endeavour Group ((EDV)) rose 10%, Woolworths Group ((WOW)) 8% and Treasury Wines Estates ((TWE)) lifted by 6%. Domino’s Pizza Enterprises ((DMP)) led gains in Discretionary, rising by 35%, while Webjet and Flight Centre Travel Group ((FLT)) rose 14% and 9%, respectively.

Within Retail, Redbubble ((RBL)) jumped by 34% and Kogan.com ((KGN)) by 10%, though Harvey Norman fell -5% and JB Hi-Fi ((JBH)) slipped -2%.

REITs

REITs returned 6.3% in August, outperforming the 2.5% performance by the ASX200.

For the past 12 months rolling, REITs have returned 30.8%, outperforming the overall market, which returned 28.1%.

Globally, REITs were up 1.5% in August (USD terms). For the past 12 months, Global REITs have returned 31.2% (USD terms).

The FY21 reporting season saw Retail REIT results that were ahead of UBS’s cautious expectations. There were also thought to be very strong outlook statements from fund managers in the sector.

Retail REITs returned 9.4%, Diversified REITs 8.0%, Office REITs returned 3.7% and Industrial REITs returned 2.3%.

Key outperformers were Centuria Capital Group ((CNI)) which rose 17.5%, Scentre Group ((SCG)) 12.6% and Ingenia Communities Group ((INA)) up by 12%.

Underperformers included BWP Trust ((BWP)) which fell -1.2%, Goodman Group ((GMG)) rose 2.2% and Charter Hall Retail ((CQR)) increased by 2.7%.

Commodities

The CRB Commodity Index was flat for August at 218.

Brent crude oil fell -4.4% to US$73/bbl.

Iron ore prices were weaker in August and fell -14.3% to $US158.5/t

The gold price was steady at US$1,813.6/oz, while in base metals aluminium rose 4.9%, copper fell -2.1% and nickel was unchanged over the month.

Interest rates

The Australian 10-year bond yield fell -3bps to 1.16%, while the 10-year US yields rose 9bps to 1.31%.

Foreign Exchange

The US Dollar Index (DXY), a measure of the value of the US Dollar relative to a basket of foreign currencies, rose 0.5% during August.

The Australian dollar declined -0.4% during the month to close at US73.16 cents.

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