March in Review: Growth Beats Value, USD Rises

Australia | Apr 07 2021

During March the ASX200 rose 1.8%, underperforming a 4.2% rise for the S&P500

-Strong EPS uplift forecast
-Value slipped after five consecutive months of outperformance
-Iron ore forecast to drop -5-10%
-Gold forecast to drop to US$1550/oz

By Mark Story

The outperformance of Australian growth stocks in March ended value’s winning streak, with technology and precious metals outperforming energy and communication services, while stocks with retail exposure were particularly strong.

It was large caps that led the market higher, with the ASX50 up 1.8%, compared with a 0.2% increase in the Small Ordinaries, and a 4.2% rise in the S&P500. However, ASX-listed small and emerging stocks slightly outperformed the ASX100. 

A steady increase in equity indices (Small Ordinaries, MidCap 50, and ASX100) witnessed in March was supported by an increase in earnings per share (EPS) forecasts for the current financial year.

During the four weeks of March, market trends generally paused with a plateau in Australian inflation expectations and bond yields, while the downward trend in gold halted, and this helped to support returns for stocks in the utilities, discretionary and communications sectors.

The tail end of March saw greater Brisbane go into a three-day snap lockdown, (global cases of covid surpassing 128m during the month), while the ship blocking the Suez Canal was also set free on the last day of the month. The end of March also marked the government’s ability to vaccinate 600,000 Australians, well down on the projected target of four million.

While major flooding witnessed across NSW and Queensland during March bodes well for listed Agri-sector stocks, it’s yet another hit to reinsurers following other recent one-off events. For example, Suncorp ((SUN)) expects the cost of this event to be -$230mn to -$250m, above the -$200mn (gross) estimate that Insurance Group Australia ((IAG)) expects the event to cost it.

Other notable developments in March included a -US0.7c fall in Aussie dollar as the spread between Australian and US bond yields narrowed. Commodities also pulled back, with iron ore prices down to US$174/t, and oil prices declined to US$63.54/bbl (-US$2.59/bbl).

During March, developed equities outperformed emerging markets, while global growth and value were both up.

While the ASX200 rose 2.4% in March, the index underperformed against the Developed Market World's return of 4.4% in local currency terms. In USD terms, the ASX200 dropped -0.8%, but outperformed against the DM World return of -3.3%. The Small Ords was up 1.6% over March, driven by consumer discretionary and A-REITs.

Looking across global markets, MSCI World Developed markets index dropped -3.3%, underperforming against the Emerging Markets World return which rose 1.5% in USD terms. The DJ Euro Stoxx (down -4.3%) and the FTSE100 (down -2.7%) both dropped, while the Nikkei 225 rose 2.3%.

Australian Stock market by Sector

On a sector-by-sector basis, the consumer discretionary, utilities, and REITs sectors outperformed during the month of March with increases of 7.0%, 6.8%, and 6.6% respectively. By comparison, the sectors that underperformed the most were the materials (-3.0%) and technology (-2.9%) sectors.

Positive EPS revisions underpin index performance, with the latter part of the month witnessing small gains in the Small Ordinaries, MidCap50 and ASX100 – hence extending gains in recent weeks.

This was supported by upward revisions to EPS forecasts (of 4%) for the current financial year, resulting in little change to index PE ratios.

While iron ore and gold stocks dominated the leader-board for positive and negative EPS revisions respectively, there was little price reaction.

At the individual stock level, Hansen Technologies ((HSN)) and Clinuvel Pharmaceuticals ((CUV)) saw large positive EPS revisions and share price movements, while GrainCorp ((GNC)) is also enjoying upward FY21 EPS revisions. On the flipside, Spark New Zealand ((SPK)), NRW Holdings ((NWH)), and particularly Resolute Mining ((RSG)) each saw their share price fall on downward EPS revisions.

Overall, energy, industrials and miners underpinned the March uplift, with energy comfortably topping the table, with year-ahead expectations lifting by over 15% and every stock in the sector in upgrade mode. The stand-outs for the month were Oil Search ((OSH)) up 20%, Woodside petroleum ((WPL)) up 17% and Origin Energy ((ORG)) up 12%.

Meantime, mining was driven by large upgrades to Rio Tinto ((RIO)), BHP Group ((BHP)), and South32 ((S32)), up 11%, 8% and 7% respectively.

Best and worst Australian Stocks within Indices

The best performing ASX100 stocks during the month of March were JB Hi-Fi ((JBH)) rising 19.3%, Crown Resorts ((CWN)) up 18.2% and BlueScope Steel ((BSL)) up 16.0%.

The worst performers were AMP ((AMP)) down -15.7%, Afterpay ((APT)) down -15.1%, and a2 Milk Company ((A2M)) down -12.9%.

The dragging sectors on the Small Ords were diversified metals and mining, driven by Western Areas ((WSA)) and Ioneer ((INR)); and financials, mainly Zip Co ((Z1P)). However, gold equities were also a driver of the gains in the Small Ords, with the yellow metal appearing to stabilise over the last four weeks.

Among the Small Ordinaries, the best performers were Ardent Leisure ((ALG)) rising 45.7%, Hansen Technologies up 34.0% and Mayne Pharma Group ((MXY)) up 27.3%. Worst performers included Freedom Foods ((FNP)) down -84.4%, Resolute Mining, down -31.8%, and Zip Co, down -29.0%.

Consumer Staples also outperformed, although this was largely attributable to gains in three stocks, namely GrainCorp, United Malt ((UMG)) and Select Harvests ((SHV)).

Value versus Growth

Following five consecutive months of outperformance, value slipped in Australia during March – underperforming growth by -3.51 percentage points. Performance however across the value complex was not uniform, with the banks (up 5.1%) delivering another strong showing, while mining was down -7.1%. The other key component of value, energy, also slid in March, albeit a modest decline of just -0.5%.

Macquarie notes the outperformance of growth is consistent with the fall in domestic bond yields in March. With price to earnings dispersion still higher than at any time before the pandemic, vaccines driving the normalisation of the economy, and an expectation that bond yields will rise further, the broker continues to favour value.

M&A activity

While low funding costs and improving confidence supports M&A activity, Macquarie believes covid winners in particular could take advantage of current high profitability and share-price strength to acquire assets that can help achieve their longer-term corporate objectives.

Computershare ((CPU)) up 14.5%, was the best performer in the ASX50, supported by higher US bond yields and the accretive acquisition of Wells Fargo’s Corporate Trust business. REA Group ((REA)) also announced a bolt-on acquisition in March (Mortgage Choice), while Blackstone made an offer for Crown Resorts ((CWN)), pushing the stock up 18.2% in March.

Consumer-led rebound

Given the vaccine rollout progresses across Australia with minimal outbreaks, further driving consumer confidence, outperformance experienced by the consumer sector (ASX200 +1.8%) during March came as no surprise.

The retail sector was the best performing sector within consumer, returning 8.2% and outperforming the market by 6.40 percentage points. Discretionary was not far behind 6.9%, followed by Staples 2.3%.

Within retail, Premier Investments ((PMV)) up 23%, JB Hi-Fi ((JBH)) up 19% and Harvey Norman ((HV)) up 13% led the rally, offsetting declines in ((KGN)) down -13% - which was the only stock in retail experiencing negative returns.

Macquarie notes Premier Investments' positive share price performance was spurred by a strong first half 2021 result, whereas strong home & furniture spend, as a result of a robust housing market, appears to be driving momentum in Harvey Norman and JB Hi-Fi.

Meanwhile in staples, GrainCorp ((GNC)) up 24%, United Malt group ((UMG)) up 12%, Elders ((ELD)) up 10%, and Metcash ((MTS)) up 9% were the best performing stocks.

On an earnings per share basis, Macquarie notes year-on-year retail saw the highest upgrade in over 10 years of 20.5% in the month. By comparison, staples saw downgrades of -8.2% on a year-on-year basis, albeit an improvement from prior month and December’s year-on-year downgrades of -11.9%.

Macquarie notes this compares to the broader market (ASX200) which was upgraded 0.8% year-on-year in March 2021, and up 2.9% on a month-on-month basis.

Within supermarkets, Macquarie continues to believe Woolworths ((WOW)) is the best-in-class, demanding a premium and the retention of the broker’s Outperform rating. Within consumer discretionary, the broker prefers previously mentioned Harvey Norman and JB Hi-Fi and expects strong housing turnover to support top-line sales for high-margin categories such as furniture.

Lastly, Macquarie remains positive on Flight Centre ((FLT)), and has an Outperform rating on the stock given optimism around travel recovery, increasing cost-out and government’s new $1.2bn travel & tourism stimulus.


In the month of March, despite growth outperforming value, technology stocks underperformed the broader market, with the ASX technology index down -2% versus the ASX100 up 1.8%. Within the technology index, Hansen Technologies rose 32%, RPMGlobal ((RUL)) up 22% and Alcidion Group ((ALC)), up 22% were the best performers.

Worst performers were Ioupay ((IOU)), down -36%, Laybuy ((LBY)), down -36%, and Splitit ((SPT)), down -35%.

According to Credit Suisse, the median revenue multiple in the tech index at 31 March was 5.3x, compared to 6.2x at 28 February 2021. The mean revenue multiple for the WAAX stocks – Wisetech Global ((WTC)), Afterpay, Altium ((ALU)), and Xero Ltd ((XRO)) at 31 March was 17.2x, versus 17.7x at 31 January 2021.

While Credit Suisse's sector update mentions WAAAX regularly, the above four constituents plus Appen ((APX)), when it comes to comparing valuations, the broker has for unqualified reasons decided to exclude Appen; hence WAAAX becomes WAAX for valuation comparative purposes. Following a series of disappointing market updates, Appen's share price has more than halved since August last year (-63% from the peak).

Credit Suisse does regard the sector rotation away from tech as a risk due to rising rates. The broker sees multiple companies (within coverage) with strong, multi-year compounding growth outlooks.

For example, as the market increasingly looks for re-opening trades, Credit Suisse remains upbeat on travel stocks Corporate Travel ((CTD)) and Webjet ((WEB)). Given they will be key beneficiaries of the northern hemisphere re-opening and resuming travel, the broker has an outperform rating on both stocks.

However, the broker’s stock preferences within the tech sector include Xero, Life360 Inc ((360)), Audinate Group ((AD8)), Altium, Iress Ltd ((IRE)), and Infomedia ((IFM)).

Real Estate Investment Trusts

The end of March marked the close of the Commercial Code, with the government mandated rental support for small to medium enterprises finally over.

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