WEEKLY E-MAIL

7 July 2020

FINANCIAL YEAR 2019/20:

IT WAS A ROCKY YEAR

By Anthony Yannakakis

There has never been a Financial Year as volatile as 2019/20. It was difficult for both financial markets and economies. The US-China trade war and Brexit dominated the first half of the Financial Year, causing business and consumers to restrain spending. Just as there were signs that these two factors started to ease their impact on the global economy, COVID–19 emerged.

Since the emergence of COVID–19, governments have provided an unprecedented amount of stimulus, and fiscal support for their economies and central banks have slashed interest rates. Governments then started to impose lockdown measures on businesses and the movement of people from late January with the strictest measures applied in March to May. These measures aimed to suppress the virus, with countries having varied success.

After 28 years, Australia’s record economic expansion has seemingly come to an end at the hands of COVID–19. The Australian economy contracted 0.3% in the March quarter and is likely to have contracted 8% in the June quarter. In the first half of 2020, the World Bank estimates that 90% of global nations are expected to have experienced a recession.

The Australian share market was impacted dramatically by these factors as it plunged from bull to bear market and then swung back to bull again in a matter of weeks. The S&P/ASX 200 Price Index can be classified in 3 distinct phases over the Financial Year.

Phase One – July 1 2019 to February 20 2020

The market performed strongly in phase 1 despite US-China trade tensions and Brexit. The S&P/ASX 200 Price Index climbed to a record intraday high (7,197 points) on February 20.

Phase Two – February 20 2020 to March 23 2020

The market proceeded sharply downhill from February 20 2020, plummeting almost 40% to 4,403 points on March 23 2020. In just a month, the benchmark index experienced its faster ever descent into bear market territory.

Phase Three – March 23 2020 to June 30 2020

By the end of June, the market had rebounded by 34% to 5,897 points with hopes for a vaccine, record low interest rates, unprecedented stimulus packages and bets on a V-Shaped recovery. Investors seemed to ignore the bad news of unemployment soaring, retail sales suffering and Australia’s first recession in 28 years.

Despite the recovery, the market was still 17% below its February record at the end of June. The three phases are highlighted in the chart of the S&P/ASX 200 Price Index below:

Major asset class results for the 2019/20 Financial Year were as follows:

The S&P/ASX 200 A–REIT Accumulation Index experienced the largest fall for the Financial Year at –21.33%. Lockdowns across Australia have affected the A–REIT sector with a large proportion being retail property. Retail property landlords have had to allow for rent relief when the businesses were not able to open, thus affecting the sentiment in the sector.

The Australian Dollar fell against the US Dollar throughout February and March, helping reduce the impact of the falls from any unhedged international investments. The AUD/USD reached a 17–year record low in March of 56 cents. The fluctuation in currency can be seen in the chart below:

There was a significant disparity between the performance of the sectors in the S&P/ASX 200 for the 2019/20 Financial Year. This can be seen in the table below:

Healthcare, Technology, Consumer Staples and Consumer Discretionary were the best performing sectors in the Financial Year, and they were the only ones that posted gains. Conversely, Energy was the worst-performing sector. Financials was the second weakest sector given the potential for a surge in defaults and bank profit margins will be squeezed with meagre interest rates.

The new Financial Year is beginning with countries coming out of lockdown and economies returning to some sense of normalcy. As economies reopen, setbacks like the outbreak in Melbourne are not unexpected.

We expect markets to continue to be volatile over the short term, particularly with the US election in November.

Anthony Yannakakis
Associate Financial Planner
Authorised Representative No. 1269870

If you have any questions or comments, please email me at anthony@gfmwealth.com.au

Disclaimer: This document is not an offer or invitation to any person to buy or sell any interest in or deposit funds with any institution. The information here is of a generic nature, and does not take into account your investment objectives or financial needs. No person should act upon this information without firstly seeking competent, professional advice specifically relating to their own particular situation.

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