March In Review: Fifth Month Of Market Gains

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The ASX200 gained 3.3% in March, matching returns from global equities and closing at another record high.

-The ASX200 gained 3.3% (total return) in March
-Small and emerging companies outperformed
-Materials recovered, real estate & gold outperformed
-Investors should await a correction before increasing risk, suggests Macquarie

By Mark Woodruff

Marking the fifth consecutive monthly advance, the ASX200 gained 3.3% (including dividends) in March and closed at another record high. Small caps gained 4.8% in an ongoing outperformance compared to mid-and large cap stocks.

Bonds also gained slightly (long-term interest rates eased) after the Reserve Bank of Australia held the cash rate steady for the third straight month based on steady inflation.

The local bourse kept pace with the global equities rally in March. In a broad measure of global equity market performances, the MSCI All Country World Index (ACWI) rose by 3.4%. The S&P500 in the US gained 3.2%, bringing the year-to-date gain to 10.2%, behind Japan which has gained 19.3% so far in 2024.

The Nasdaq100 index in the US also gained 1.2% in March for a total return of 8.7% over the March quarter. In Australia, the Technology sector gained 2.4% for the month.

Nearly every sector in the ASX200 rose, led by a 9.3% gain for Real Estate, with Communication Services the only sector registering a loss, dragged lower by key online media laggards in Seek ((SEK)) and REA Group ((REA)) which retreated by -3.3% and -1.7%, respectively.

Financials and Real Estate contributed the most, while Materials bounced back from previous months' losses.

The Real Estate sector rallied over 9% in March to become the second-best sector year-to-date behind Information Technology. Gains for Real Estate were broad-based, notes Macquarie, led by Goodman Group ((GMG)), Mirvac Group ((MGR) and Charter Hall ((CHC)) which gained 10.9%, 9.3% and 9.1%, respectively.

The broker feels the sector's gains were strong given a small fall only in bond yields, though less tight credit conditions are supportive.

Small and Emerging companies did particularly well

Small caps continue to close the relative performance gap to large caps, highlights Morgan Stanley, with a 1.8% percentage point relative outperformance in March, driven by a bounce in the performance of Resources, which outperformed Industrials across all size biased indices.

The Small Ordinaries outperformed the ASX50 by 1.8 percentage points in March, while Emerging Companies (ex-300 small caps) had even stronger returns, outperforming the ASX50 by 3.3 percentage points.

Growth outperformed Value by a modest 0.2 percentage points for the month, though did outperform by 4.7 percentage points over the March quarter. 

The Materials sector on the ASX recovered from a recent run of losses, despite a -12% fall in the iron ore price to US$103/t.

The CRB Index rose by 5.5% to 290 over March, with Brent crude oil rising by 4.6% to US$87.5/bbl, and gold jumping by 9.1% to around US$2,229.9/oz.

The Gold sector was the strongest performer with a gain of 16.6% despite only a small fall in real yields as demand for physical gold remains strong, according to Macquarie.

The US dollar Index (DXY), a measure of the value of the US dollar relative to a basket of foreign currencies, increased by 0.4% to 104.55, and the Australian dollar rose by 0.3% to US$0.6516.

ASX Cash Rate Futures currently have a 10% chance the RBA will cut at its next meeting on May 6-7. The odds of a cut at the next meeting fell from a high of over 25% near the start of March as the labour market and growth expectations remain resilient, explains Macquarie.

For the equity market, this broker has developed an equity sentiment index called the fear of missing out (FOMO) meter. This gauge takes into account a range of factors including individual investors' stock allocations, net percentage long positions held by asset managers, and the percentage of individual stocks trading above the 200 day moving average for the S&P500 in the US.

The FOMO meter increased by 0.37pts to 1.57 at the end of March, the highest reading since 2004, when US equities subsequently fell by circa -5% in the following six months. 

The most extreme component of the meter is the net 52% of asset managers who are long S&P500 equity futures in the US, cautions the analyst, with the only higher percentage during April 2008 (around the mid-point of the global financial crisis).

Macquarie concludes equity sentiment needs to cool, and investors should wait for a correction before rotating more to risk.

Morgan Stanley also highlights the strong recent stock market run in Australia has market multiples for a number of sectors now trading at highs including Discretionary, Financials, Industrials and Real Estate.

ASX100 Best and Worst Performers of the month (in %)

ASX200 Best and Worst Performers of the month (in %)

ASX300 Best and Worst Performers of the month (in %)

ALL-TECH Best and Worst Performers of the month (in %)

All index data are ex dividends. Commodities are in USD.

Australia & NZ

The World

Metals & Minerals

Energy

Australian Banks

The average major bank total shareholder return of 2.0% in March lagged the 3.3% return from the ASX200 index, though Morgan Stanley highlights a good March quarter with an average total shareholder return of 12.5%.

During March, ANZ Bank ((ANZ)) and CommBank ((CBA), with gains of 3.3% and 3.4%, respectively, returned in line with the ASX200, though Westpac ((WBC)) and National Australia Bank ((NAB)) underperformed with a retreat of -0.9% and a gain of 2.4%, respectively.

In contrast to the majors, smaller banks outperformed the ASX200 with Bank of Queensland ((BOQ)), Judo Capital ((JDO)) and Bendigo & Adelaide Bank ((BEN)) gaining 7.7%, 6.8% and 5.9%, respectively.

Relative to the ASX Industrials ex Banks, and relative to bonds, Morgan Stanley considers the major banks are expensive compared to the sector average valuation since 2010.

Australian Financials Ex-Banks

Stocks with leverage to rising markets helped Financials Ex-Banks to outperform the ASX200 in March, explains Morgan Stanley, with Magellan Financial Group ((MFG)) Netwealth Group ((NWL)) and Platinum Asset Management ((PTM)) gaining 23%, 11% and 10%, respectively.

The broker highlights Insurers are among the strongest performers this year with shares in QBE insurance, Suncorp Group and Insurance Australia Group rising by 24%, 21% and 14%, respectively. The insurance sector continued with modest outperformance in March.

New Zealand

In common with the ASX200, nearly every sector in the NZX50 gained in March, though small caps continued to struggle.

Despite a confirmed recession for New Zealand, with fourth quarter 2023 output shrinking by -0.1% after falling by -0.3% in the previous quarter, the NZX50 gained 3% to pull the index into positive territory year-to-date. 

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