Australia | Sep 05 2023
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The ASX200 outperformed overseas indices in August though lost -0.7% on weakness in the utilities and staples sectors, despite a strong performance by discretionary stocks.
-The ASX200 lost -0.7% (total return) in August
-Utilities and Staples lagged, Discretionary outperformed
-Investors rotate into early-cycle cyclicals
-The Australian dollar fell by -3.5% to US$0.6472
By Mark Woodruff
The ASX200 lost -0.7% (including dividends) in August after the market rallied from intra-month lows due to better-than-expected CPI data and retail sales for July, according to Morgan Stanley.
A disappointing reporting season for Mining sector stocks contributed to the overall loss, suggests UBS, which were further subdued by a -9% fall in Chinese equities.
The MSCI Developed Markets Index and the S&P500 in the US both lost -1.7% and -1.6%, respectively, in local currency terms.
The Australian 10-year bond yield fell by -2bps to 4.03%, trading relatively unchanged as the Reserve Bank of Australia remained unmoved on the policy rate though still retained a tightening bias. UBS forecasts the current 4.1% cash rate will be the peak for the current cycle.
US yields rose by 14bps over the month, to 4.09%, as the Federal Reserve maintained hawkish commentary.
In Australia, Discretionary (5.8% gain), Real Estate and Energy were the notable sector leaders and positive contributors for the month. REITs achieved a total return of 1.6%, supported by a strong contribution from Goodman Group ((GMG)), in defiance of still elevated bond yields. The Utilities (-3.9% loss), Staples and Technology sectors were the main sector laggards.
Investors in Australia rotated into early-cycle cyclicals, according to Macquarie, which aided the Discretionary sector, while Defensive stocks were some of the worst performers due to reporting more negative EPS surprises, partly because of higher interest costs.
Morgan Stanley observes stock contribution within the Discretionary sector was not broad based, with Wesfarmers ((WES)) accounting for most of the gains.
Large caps outpaced mid caps, with small caps the worst performed, though all three indices lost ground in August, while Industrials on average fared better than Resources.
The Small Ordinaries closed lower in August, despite strong contributions across the Discretionary, Energy and Communication Services sectors. The Real Estate sector was the largest detractor of performance for the month.
Following the reporting season, Morgan Stanley suggests large caps (ASX100) have a lower growth profile in magnitude compared to the ASX300, where small-to-mid caps provide an incremental boost.
Growth was most successful in limiting its losses to -0.4% while S&P Global notes its ASX200 Enhanced Value Index lost -3.1%. This index measures the performance of the top 40 stocks in the ASX200 with attractive valuations, based on ratios for price-to-book, price-to-earnings and price-to-sales.
Commodity prices were mixed over August with the CRB Index relatively flat, only falling by -0.1% to 282.
Brent Oil rose by US$0.30/bbl to US$85.86/ bbl, on a US crude inventory drawdown, according to UBS, while the iron ore price rose by US$6.50 to US$117.50/Mt on solid crude steel production in China.
Gold prices fell on a strengthening US dollar coupled with escalating long-end yields in the US, explains UBS, falling by -US$23.10/oz to US$1,948/oz.
The US dollar Index (DXY), a measure of the value of the US dollar relative to a basket of foreign currencies, increased by 1.77% to 103.62, while the Australian dollar declined by -3.5% to US$0.6472.
Given ongoing growth headwinds, Macquarie forecasts equity markets will be volatile in September and expects defensives that sold off in the August reporting season will outperform.
On the flipside, this broker expects some of the cyclical stocks that outperformed strongly, mainly on a price earnings ratio expansion, may underperform in September.
Historically, September has the lowest average price return of -1.7% for the ASX200, with a negative return in seven of the last ten years. It also tends to be the weakest month for the S&P500.
ASX100 Best and Worst Performers of the month (in %)
| Company | Change | Company | Change |
|---|---|---|---|
| ALU – ALTIUM | 26.69 | AWC – ALUMINA LIMITED | -24.48 |
| CAR – CARSALES.COM LIMITED | 15.61 | RMD – RESMED INC | -24.23 |
| GMG – GOODMAN GROUP | 13.73 | SQ2 – BLOCK INC | -23.70 |
| COH – COCHLEAR LIMITED | 13.51 | WTC – WISETECH GLOBAL LIMITED | -18.99 |
| AMP – AMP LIMITED | 11.95 | ILU – ILUKA RESOURCES LIMITED | -16.54 |
ASX200 Best and Worst Performers of the month (in %)
| Company | Change | Company | Change |
|---|---|---|---|
| ALU – ALTIUM | 26.69 | CHN – CHALICE MINING LIMITED | -39.59 |
| ING – INGHAMS GROUP LIMITED | 24.29 | IRE – IRESS LIMITED | -38.34 |
| GUD – G.U.D. HOLDINGS LIMITED | 21.77 | CXO – CORE LITHIUM LIMITED | -38.28 |
| JLG – JOHNS LYNG GROUP LIMITED | 21.36 | IMU – IMUGENE LIMITED | -32.00 |
| 360 – LIFE360 INC | 20.70 | AWC – ALUMINA LIMITED | -24.48 |
ASX300 Best and Worst Performers of the month (in %)
| Company | Change | Company | Change |
|---|---|---|---|
| AD8 – AUDINATE GROUP LIMITED | 48.25 | MSB – MESOBLAST LIMITED | -55.46 |
| DYL – DEEP YELLOW LIMITED | 37.21 | ABP – ABACUS PROPERTY GROUP | -54.89 |
| RED – RED 5 LIMITED | 36.11 | CHN – CHALICE MINING LIMITED | -39.59 |
| BBN – BABY BUNTING GROUP LIMITED | 32.13 | IRE – IRESS LIMITED | -38.34 |
| ABB – AUSSIE BROADBAND LIMITED | 29.82 | CXO – CORE LITHIUM LIMITED | -38.28 |
ALL-TECH Best and Worst Performers of the month (in %)
| Company | Change | Company | Change |
|---|---|---|---|
| BVS – BRAVURA SOLUTIONS LIMITED | 54.00 | IRE – IRESS LIMITED | -38.34 |
| EML – EML PAYMENTS LIMITED | 49.67 | WBT – WEEBIT NANO LIMITED | -35.81 |
| AD8 – AUDINATE GROUP LIMITED | 48.25 | APX – APPEN LIMITED | -30.18 |
| PPS – PRAEMIUM LIMITED | 28.57 | SQ2 – BLOCK INC | -23.70 |
| ALU – ALTIUM | 26.69 | WTC – WISETECH GLOBAL LIMITED | -18.99 |
All index data are ex dividends. Commodities are in USD.
Australia & NZ
| Index | 31 Aug 2023 | Month Of Aug | Quarter To Date (Jul-Sep) | Year To Date (2023) |
|---|---|---|---|---|
| NZ50 | 11554.480 | -4.16% | -3.04% | 0.71% |
| All Ordinaries | 7517.80 | -1.37% | 1.57% | 4.10% |
| S&P ASX 200 | 7305.30 | -1.42% | 1.42% | 3.79% |
| S&P ASX 300 | 7258.00 | -1.44% | 1.41% | 3.65% |
| Communication Services | 1548.60 | -1.94% | 0.73% | 9.74% |
| Consumer Discretionary | 3184.50 | 4.64% | 8.18% | 16.64% |
| Consumer Staples | 12599.70 | -4.13% | -5.22% | 0.46% |
| Energy | 11546.40 | -2.02% | 6.64% | 4.61% |
| Financials | 6414.30 | -1.65% | 3.13% | 0.88% |
| Health Care | 40228.30 | -1.05% | -2.57% | -2.80% |
| Industrials | 6788.50 | -2.43% | -0.12% | 8.88% |
| Info Technology | 1871.40 | -2.07% | 2.29% | 33.15% |
| Materials | 17873.40 | -2.24% | -0.88% | 1.89% |
| Real Estate | 3201.40 | 0.99% | 5.17% | 6.60% |
| Utilities | 8697.30 | -4.25% | -0.42% | 4.64% |
| A-REITs | 1430.20 | 1.68% | 5.57% | 7.26% |
| All Technology Index | 2598.60 | 0.62% | 7.53% | 29.57% |
| Banks | 2615.50 | -1.66% | 4.75% | -1.16% |
| Gold Index | 6871.70 | 2.30% | 3.83% | 16.10% |
| Metals & Mining | 5935.20 | -2.76% | -2.02% | -0.21% |
The World
| Index | 31 Aug 2023 | Month Of Aug | Quarter To Date (Jul-Sep) | Year To Date (2023) |
|---|---|---|---|---|
| FTSE100 | 7439.13 | -3.38% | -1.23% | -0.17% |
| DAX30 | 15947.08 | -3.04% | -1.24% | 14.53% |
| Hang Seng | 18382.06 | -8.45% | -2.82% | -7.07% |
| Nikkei 225 | 32619.34 | -1.67% | -1.72% | 25.00% |
| DJIA | 34721.91 | -2.36% | 0.91% | 4.75% |
| S&P500 | 4507.66 | -1.77% | 1.29% | 17.40% |
| Nasdaq Comp | 14034.97 | -2.17% | 1.79% | 34.09% |
Metals & Minerals
| Index | 31 Aug 2023 | Month Of Aug | Quarter To Date (Jul-Sep) | Year To Date (2023) |
|---|---|---|---|---|
| Gold (oz) | 1942.00 | -0.89% | 1.78% | 8.30% |
| Silver (oz) | 24.59 | 1.15% | 9.14% | 4.73% |
| Copper (lb) | 3.8107 | -1.89% | 2.52% | 1.53% |
| Aluminium (lb) | 0.9761 | -0.48% | 1.91% | -16.89% |
| Nickel (lb) | 9.2737 | -6.99% | 4.20% | -27.52% |
| Zinc (lb) | 1.0951 | -1.40% | 4.43% | -19.31% |
| Uranium (lb) weekly | 58.50 | 4.09% | 4.09% | 22.90% |
| Iron Ore (t) | 114.89 | 6.61% | 0.86% | 4.04% |
Energy
| Index | 31 Aug 2023 | Month Of Aug | Quarter To Date (Jul-Sep) | Year To Date (2023) |
|---|---|---|---|---|
| West Texas Crude | 81.63 | 1.30% | 16.85% | 4.56% |
| Brent Crude | 85.95 | 1.13% | 15.66% | 5.49% |
Australian Banks
The average major bank total shareholder return of -0.6% in August was broadly in line with the -0.7% loss for the ASX200.
National Australia Bank ((NAB)) gained 1.9% for the month with the remainder in negative territory. CommBank ((CBA)), ANZ Bank ((ANZ)) and Westpac ((WBC)) lost -1%, -1.6% and -1.7%, respectively.
At the smaller end, Bendigo & Adelaide Bank ((BEN)) gained 1.7%, but Bank of Queensland ((BOQ)) lost -4.6% and Judo Capital lost -32.6% following the release of FY23 financials. While no specific FY24 guidance was provided, management signalled a sharp margin decline is on the cards.
In reaction, Morgan Stanley downgraded its rating to Equal-weight from Overweight and reduced its 12-month target price to $1.20 from $1.70.
Relative to the ASX Industrials ex Banks, the major banks are cheap compared to their average since 2010, but relative to bonds, they are expensive versus the average since 2010, explains Morgan Stanley.
New Zealand
The NZX50 in New Zealand lost -4.1% in August with the NZX Emerging Opportunities Index also losing -4.1%.
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CHARTS
For more info SHARE ANALYSIS: ANZ - ANZ GROUP HOLDINGS LIMITED
For more info SHARE ANALYSIS: BEN - BENDIGO & ADELAIDE BANK LIMITED
For more info SHARE ANALYSIS: BOQ - BANK OF QUEENSLAND LIMITED
For more info SHARE ANALYSIS: CBA - COMMONWEALTH BANK OF AUSTRALIA
For more info SHARE ANALYSIS: GMG - GOODMAN GROUP
For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED
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For more info SHARE ANALYSIS: WES - WESFARMERS LIMITED