Market update

Investment market review - Quarter-ended 30 September 2020

10 December, 2020

The Research Team provides a performance summary and commentary on each of the five main asset classes.

Australian shares

The S&P/ASX 300 Accumulation Index struggled against global markets in the September 2020 quarter, falling slightly by 0.1%. Information Technology was the top performer (up 12.3%) followed by Consumer Discretionary (up 7.7%) and Property (up 6.7%). Gradual easing of lockdown measures across most of Australia and companies beating market expectations in reporting season were notable drivers for the Consumer Discretionary and Property sectors. In particular, home improvement companies such as Nick Scali and Beacon Lighting saw strong growth.

Most sectors had negative returns, with Energy (-15.2%), Utilities (-9.5%) and Financials (-6.9%). The Utilities sector fell due to lower electricity prices and the rise of alternative energy sources. Energy stocks were impacted by weak oil prices due to weaker oil demand following a surge of coronavirus cases and lock downs in Europe. Financials suffered from the speculation of another RBA rate cut and lockdowns in Victoria. The latter acted as a drag on economic growth. In addition, it poses challenges to the health of bank mortgages as the lockdowns force business shutdowns impairing worker and employee incomes, making it harder to keep up with mortgage repayments and other debts.

Smaller companies outperformed, with the Small Ordinaries up 5.7% and microcaps up 21.3% on a total return basis for the quarter. On a trailing 1-year basis to September, both small and micro caps have outperformed the S&P/ASX 200 by 6.9% and 14.9% respectively. This is consistent with history where these smaller companies tend to sell off more forcefully during corrections but subsequently bounce back more strongly than larger companies.

Listed property trusts

The Australian Real Estate Investment Trust (A-REIT) sector performed strongly, rising 7.4% during the September quarter, continuing to regain some of the losses experienced during the March quarter.

The easing of lockdown restrictions across Australia (other than Melbourne) was a key driver of this improvement. Government stimulus also supported consumer spending which saw real estate associated with e-commerce or retail businesses benefit substantially both here and overseas. For example, logistics landlord Goodman Group which provides warehousing real estate to major e-commerce providers rose almost 20.8%.

International shares

International shares had a weaker quarter compared to the Australian market with the MSCI World Index in Australian dollar terms rising 6.1%.

Global share markets rose during the September quarter (in local currency terms) led again by United States (US) technology stocks and the US market more generally. A major factor in this US leadership was continued growth in profits by US tech companies. For instance, video conferencing giant Zoom has raised its estimated 2020/21 financial year revenue growth to over 282%, reflecting the strength of the work-from-home dynamic across the world.

Hedged global equities rose 6.4%. Key drivers for the Australian dollar (and hence better returns for currency hedged equities) continued to be strong growth in China which supported commodity prices particularly iron ore.

Fixed interest

The Australian bond market benchmark, the Bloomberg AusBond Composite Index, rose 1% during the September quarter.

There were two main drivers behind the increase.

First, we saw a further decline in credit spreads (the difference in yield between government and business bonds) during the quarter. This was driven by a stronger economic outlook and anticipation of fiscal support in the October 2020 Federal Budget. This reduced the risk of business failure which saw investors bid up bond prices (as it is likelier that they get their money back). Government bonds returned 1% against a 1.5% return for corporate bonds.

Second, we saw bond prices pushed higher (and bond yields lower) by investors seeking safe, less risky, assets with the bulk of the return for government bonds coming during the month of September. This ‘flight to safety’ response is something we typically see when share markets fall which happened due to rising coronavirus cases in Europe seeing new lockdown restrictions and continued deadlock in delivering further government support in the US.


The Cash benchmark, the Bloomberg AusBond Bank Bill Index, rose 0.025% during the September quarter.

Speculation intensified that the Reserve Bank of Australia would pass on another cut to interest rates in a bid to support the economy. It also announced plans to increase its purchasing of government bonds to bring the 3-year government bond yield closer to its cash rate target. These moves will likely see cash returns soften further in the near term.

Asset class returns

Overall, last financial year saw weak or negative returns across each asset class compared to their 10 year average. However, 10 year returns remained positive across the board. Over time investors are likely to earn positive returns although negative returns can occur over shorter time periods.