April In Review: An Inflection Point

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This story features MEGAPORT LIMITED, and other companies.
For more info SHARE ANALYSIS: MP1
The company is included in ASX200, ASX300, ALL-ORDS and ALL-TECH

The Australian market stumbled over the second half of April as inflation concerns rose with higher energy prices, and the spectre of lower earnings looms.

• The ASX200 underperformed global equities (ex NZ) over April
• Beaten-down Technology stocks rally strongly
• Healthcare took another tumble as Cochlear shares sink to decade low
• Materials and Financials do the heavy index lifting
• Earnings downside risks show up into month's end

By Danielle Ecuyer

April started with a bang and ended with a whimper

After a not-so-great March, April started with a bang in the first half of the month, with the ASX200 up 5.9% to April 15, as the index followed global indices higher post a de-escalation of risks in the Middle East, Morgan Stanley explains.

From that point onwards the domestic market failed to keep pace with its overseas peers and finished April only up 2.2% (total return).

In comparison, the S&P500 gained 10.5% (in USD terms) and the MSCI World Index rallied 8.9% (USD).

In US terms, the ASX200 rose 7%, with currency moves responsible for nearly 5% in added gains.

Technology returned with a vengeance 

One overarching thematic stretched across sectors in global markets; Technology is back, gaining 13.2% in Australia.

The S&P500’s rally was boosted by the hyperscalers, which are driving AI capex, reinforced in the latest quarterly result updates.

Google and Amazon rallied 30% off the recent lows, while semiconductors took the crown for standout performers.

Korea, led by heavyweight memory stocks SK Hynix and Samsung, saw the Kospi rise 31% over April, while individual stocks rallied by around 40%, or 38% in USD terms.

Citi explains the top four US cloud providers posted a rise in industry growth of around 6 points to 41% y/y growth. Nasdaq rose 15.3% over April.

Back home, where the AI exposure is less pronounced, Macquarie points to a 30% rally in Megaport ((MP1)) shares and 28% in NextDC ((NXT)), which upgraded contracted volumes.

After the SaaS-pocalypse, software stocks rose 10.8% as AI disruption concerns ameliorated, with UBS pointing to a turnaround in Information Technology stocks after eight long and dreadful months of underperformance.

At month’s end, the sector still remained down -18.5% year-to-date. An interesting update from Morgan Stanley’s US team highlights yet another upgrade in expected hyperscaler spending.

The broker estimates the tech giants will invest more than US$800bn in 2026, up from US$765bn (previous estimate), versus US$449bn in 2025 and up to US$1.116trn from the prior recent estimate of US$951bn for FY27.

Eye watering!

On the topic of AI related data centres, Real Estate advanced 8.1%, albeit, as observed by Macquarie, heavyweight Goodman Group ((GMG)) rose 18%, with its exposure to data centres boosting the overall sector performance.

Healthcare continues to suffer earnings downgrades

Healthcare was the worst performing sector, yet again, sinking -8.4% and bringing the year-to-date decline to -25%; a 12-month low.

As observed by Macquarie, a surprise earnings downgrade from Cochlear ((COH)) resulted in that share price tumbling -44%, while CSL ((CSL)), ResMed ((RMD)) and Ansell ((ANN)) all declined more than -5%.

April pulled down Cochlear shares to a 10-year low and shares in CSL to a 9-year low. ResMed shares traded at a 1.5-year low.

In terms of contributions to ASX200 gains over April, Morgan Stanley singles out Materials, adding 101.9bps. Investors rotated back into cyclicals with improved global risk sentiment and a recovery in commodity prices.

Banks also offered “stability”, the broker espouses, adding 101bps, with expectations of net interest margins being maintained and, at that point in time, “still benign credit conditions”.

Real Estate and Technology contributed 44.6bps and 23.6bps, respectively.

By comparison, Healthcare detracted from the monthly performance by -51.3bps and Consumer Staples by -15.1bps.

Stocks doing the heavy lifting

In terms of individual stocks, positive contributors stemmed from BHP Group ((BHP)) by 63.9bps, Macquarie Group ((MQG)) by 44.4bps, and Commbank ((CBA)) by 39.3bps.

CSL detracted by -29.9bps, Cochlear by -18.3bps, and National Australia Bank ((NAB)) by -17.3bps.

Although the price of WTI crude rose 2.94% and Brent rose 3.47%, Australia’s energy sector took a breather, slipping some -2.66%. The local energy sector remains up 32.26% year-to-date as the top performing sector in the ASX200.

Macquarie observes Growth, up 2.4%, outperformed Value by 1.6%, marking a notable turnaround after Growth underperformed value by around -35% over the year past.

UBS analysed investor crowding, noting the Industrials sector increased around 2 points, resulting in the highest overall median. Consumer Staples had a 3-point rise, the biggest increase last month.

The top crowded names (longs) in the ASX100 over April were Orica ((ORI)), Evolution Mining ((EVN)) and BHP. The top crowding in Small Ords occurred in West African Resources ((WAF)), Vault Minerals ((VAU)) and Codan ((CDA)).

Shares in the latter rallied 31% after another earnings guidance upgrade.

Sigma Healthcare ((SIG)), Telix Pharmaceuticals ((TLX)) and Endeavour Group ((EDV)) were the three most crowded ASX100 shorts, according to UBS.

Codan shares reached an all-time high in April, with shares in APA Group ((APA)) and Nickel Industries reaching 3-year highs.

Australian Clinical Labs ((ACL)) got the wooden spoon, its shares falling to an all-time low. No second guessing for why Amcor ((AMC)) and Orica ((ORI)) shares reached 12-year lows, as supply challenges from the Middle East weighed via perceived higher costs and lower earnings.

Dark clouds gathering over earnings estimates

Macquarie’s FOMO Meter responded to the 10% rally in US equities, rebounding “strongly”.

At the end of April, the meter jumped to plus 0.8, from negative -0.09 at March end.

Active investors raised their exposure to plus 94, from plus 69 in March. The Macquarie analyst sees a higher risk of a correction with rising bond yields and higher oil prices, with sentiment positioned near “FOMO territory”.

Morgan Stanley noted the ASX200’s average PE ratio rose to 16.8 times from 16.4 times, mostly from a rise in share prices, combined with “softer” earnings.

Notably, earnings forecasts have declined by -2.7% for FY26 estimates due to higher energy prices, which lowered forecast FY26 earnings growth by -1.66 points.

In contrast, the estimate for FY27 rose to 12.6% from 10.5%. While valuation support has emerged, earnings downside risk is considered to be on the rise.

While the ASX200 struggled under the weight of rising domestic inflation and RBA rate hikes being risk-priced over the second half of April, Macquarie emphasised April was the first month since December 2023 when no net easing occurred among MSCI World central banks.

The broker views this as an inflection point, as lower rates support valuation multiples, “especially” for Australian banks, which are trading 2.7 standard deviations above their historical average.

A move to net hikes over the next few months is flagged based on 2-year bond yields versus central bank policy rates. Markets are pricing hikes for ten out of eleven developed world banks. The US is the key standout with a “hawkish” hold.

While not outwardly stated by the April updates, Australia is at the forefront of an energy supply shock translating into higher inflation. The RBA has raised the cash rate three times already in 2025, with the latest 25bps delivered on May 5. The cash rate is now at 4.35%.

Expert opinions remain divided over whether the RBA will keep hiking or whether the cure to higher costs is higher costs, thereby curbing demand, economic growth and inflation.

Cochlear wasn’t even the worst performer among ASX300 constituents in April. That ‘crown’ goes to small-cap minerals explorer Dataline Resources ((DTR)), see the tables below.

And while April gains posted inside the local All-Tech Index look impressive, they still don’t match those achieved by small cap mining stocks in the ASX300.

Year-to-date the ASX200 is now underwater, but dividends keep total return in positive territory. There’s always worse; see the New Zealand index.

Among metals and minerals, iron ore (unchanged) and silver (negative) are the year-to-date laggards, as opposed to aluminium and nickel.

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

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