Australia | Dec 07 2020
During November the ASX200 recorded the best monthly return since 1993, with the energy and banking sectors leading the way
-The ASX200 climbed 10.2% during November
-Value and Cyclicals outperformed
-A FY21 expectation for greater than 10% earnings growth
By Mark Woodruff
The ASX200 index remains one of the best performing equity markets globally, ranking above all peers quarter-to-date. It is now in positive territory, up 0.2% for 2020.
The ASX200 accumulation index returned 10.2% in November, the best monthly return since 1993, as vaccine news drove price/earnings (PE) expansion and a shift to value. While it has been over three decades since the last monthly double-digit gain in Australian stocks, this happened eight times in the 1980’s.
Global markets were strong during the month. While the outcome of the US election was taken positively by markets, the real driver of the global rally in stocks was the vaccine news. Now investors have a clear line of sight on the end of the pandemic, and a normalisation of the economy.
In the US the S&P500 rose 11.3% but still underperformed slightly against the developing markets (DM) world return of 12.8%.
The world developed markets outperformance was led by the Euro Stoxx Index, which rose by 22.5% in US dollar terms. By comparison world emerging markets underperformed slightly, lifting by 9.3% in US dollar terms.
The Nikkei225 Index also rose sharply, up by 15.1% in November.
Australian Stockmarket by Sector
Covid-19 losers were the best performers in November with Energy rising by 28%, Financials up 16% and Value stocks in general increasing by 16%.
In the Financial sector, gains were made across all the banks with the Commonwealth Bank ((CBA)) being the highest contributor for the second month in a row. The Materials sector was the next best performer with BHP Group ((BHP)) the top contributing stock.
Consumer Staples was the only negative sector, with Utilities the other notable laggard, while Resources fared better than Industrials across most of the size indices.
The Small Ordinaries closed the month 10.3% higher in November, outperforming the MidCap50 (6.6%) index and in-line with the Large Cap (10.9%) index. The Small Ordinaries had no detractors in the month with Materials and Financials the top performers, while Info Tech and Staples were the laggards.
At a stock level, Mineral Resources ((MIN)) contributed the most to returns followed by IDP Education ((IEL)). Meanwhile, while Kogan.com ((KGN)) was the largest detractor from the Small Ordinaries.
For the year-to-date, the Technology segment is leading the market by a significant margin with a return of 44.1%. It has been the top performing segment in five of eleven months.
The most significant sector rotations occurring in November were reflected by Energy returning 28.4%, Banks 18.3% (following on from a 6.9% return in October) and Insurance 14.9%.
Retail REITs were also strong performers, with Unibail Rodamco Westfield ((URW)) the best with a gain of 73%.
The Energy sector’s rise of 28% paced the 27% rise in oil prices. The sector is still down -28% on a year ago and should continue to benefit from reopening and increased economy activity (especially flights & cruises), notes Macquarie.
Defensives were the laggards, with Staples (down -0.7%) the only sector in the red, but Utilities (up 1.5%) and Health (up 2.9%) also lagged the market.
Travel stocks were among the biggest winners last month, with Webjet ((WEB)) jumping 65%, Flight Centre ((FLT)) up 52% and Corporate Travel Management ((CTD)) increasing by 37%.
Some travel stocks are trading near pre-covid highs when adjusted for capital raising dilution. Macquarie highlights that whether you remain bullish on travel likely depends on whether you expect a boom when travel returns to normal.
Best and Worst Australian Stocks within Indices
The best performing ASX100 stocks during the month were Flight Centre rising by 52.0%, Beach Energy ((BPT)) up 49.2% and Oil Search ((OSH)) with a 41.6% gain.
The worst performers were Saracen Mineral Holdings ((SAR)) falling by -16.5%, Northern Star Resources ((NST)) by -15.1% and Domino's Pizza Enterprises fell -12.6%.
Among the Small Ordinaries, the best performers were Unibail Rodamco Westfield up by 73% (as previously mentioned), Pilbara Minerals ((PLS)) rising 69.1% and Webjet up 65.3%.
The worst performers were Kogan.com falling -20.3%, Alkane Resources ((ALK)) down by -17.9% and Silver Lake Resources ((SLR)) off by -16.1%.
Value versus Growth
For the ASX200 Industrials ex-financials, value outperformed growth by 7.2% on the 10th of November, the most in a single day trading since at least the 2000's.
Rising by 16% for November, value stocks had a strong month relative to growth, which only rose 4%. The former included more covid-19 losers that had lagged in the recovery.
Of interest to Macquarie is some growth stocks underperformed in November despite AGM updates that suggested current earnings momentum had continued. At the same time, some value stocks (travel a good example) saw a strong re-rating as investors looked forward to the economy returning to normal.
Cyclicals versus Non Cyclicals
During November, cyclicals produced an average return of 13.9% and non-cyclicals produced an average return of 8.0%.
Year to date on a cumulative basis, non-cyclicals are leading with returns of 5.1% versus cyclicals at -4.9%.
Credit Suisse has defined cyclicals as incorporating Real Estate, Consumer Discretionary, Energy, Materials and Industrials. Meanwhile, non-cyclicals have been defined as incorporating Banks, Diversified Financials, Insurance, Consumer Staples, Health Care, Technology, Communications Services and Utilities.