July In Review: ASX Rises While China Plummets

Australia | Aug 05 2021

Gains in the mining sector spurred a 1.1% rise for the ASX200 in July, while Chinese stocks had the largest monthly decline in nearly a decade.

-The ASX200 climbed 1.1% during July
-Mining was the best sector while Information Technology dragged
-Quality, Momentum and Growth outpaced Value
-Largest monthly decline in nearly 10 years for Chinese stocks
-JP Morgan upgrades its S&P500 year-end target to 4,600 from 4,400
-Stock picks coming into the reporting season

By Mark Woodruff

Total returns (including dividends) for Australian stocks in July amounted to 1.1% in July. The ASX200 lagged a 2.4% rise in the US for the S&P500, which had the strongest gain of the major markets.

The second quarter reporting season in the US and Europe has been very strong, leading JP Morgan strategists to upgrade their S&P500 year-end target to 4,600 from 4,400.

Overall, global markets had a mixed result in July, as the delta strain spread. The MSCI World Developed markets index rose 1.8% in US dollar terms, outperforming the Emerging Markets (EM) World index which dropped -6.7%.

The Chinese stock market was a drag on EM, falling nearly -14%, the largest monthly decline in nearly a decade. This was largely due to a regulatory crackdown coupled with ongoing concerns about slowing growth. Other global growth markets like Korea and Japan also fell -3.6% and -2.4%, respectively.

Growth outperformed Value in all key markets, except EM during July.

Back in Australia, Quality rose 2.5% for the month, supported by slowing cyclical momentum. Momentum and Growth increased 1.4% and 1.2%, respectively, outperforming Value which increased 0.4%. This trend is consistent with the fall in nominal bond yields that occurred during the month.

With a rise of 8.1%, Mining was the best performing sector in July, supported by gains in base metal prices. Industrials were next, up by 4.2%, and Utilities rose by 1.6%. Meanwhile, Information Technology fell by -6.9% and Energy declined - 2.5%. The latter is notable, given takeover talk in the sector and a flat oil price. The relative weakness of energy stocks indicates the sector may still be challenged given decarbonisation and the related ESG risks, suggests Macquarie.

Finally, takeovers were a dominant theme following offers for Sydney Airport ((SYD)) and Spark Infrastructure Group ((SKI)). 

ASX100 best and worst performers 

The best performing ASX100 stocks during the month were Sydney Airport rising by 34.9%, Spark Infrastructure Group 23.7%, and Mineral Resources ((MIN)) climbing by 17.3%. 

The worst performers were Crown Resorts ((CWN)) down by -27.7%, Afterpay ((APT)) -18.2% and Appen ((APX)) falling by -16.5%.

Emerging companies

The Small Ordinaries Accumulation Index rose 0.7% in July, underperforming the ASX100 by -0.5 percentage points.

The Small Industrials Index fell - 0.9%, while the Small Resources Index rose 7.4%.

Energy was the best-performing sector in July, rising 5.6%, followed by Materials 4.6% and Industrials increased by 3%. Meanwhile, Healthcare was the worst-performing sector, falling -4%, followed by Consumer Discretionary -3.3% and Financials declining by -3.1%.

Within the Small Ordinaries, outperforming companies included Perenti Global ((PRN)), up by 35.8%, Orocobre ((ORE)) 27.5%, Galaxy Resources ((GXY)) 27%, Australian Pharmaceutical Industries ((API)) 26.5%, Audinate ((AD8)) 22.5% and Life360 ((360)) rising by 19.3%.

Losers included Marley Spoon ((MMM)), falling by -30.7%, Piedmont Lithium ((PLL)) -28.3%, Polynovo ((PNV)) -20.2% and Data#3 ((DTL)) down by -16.8%.

Mining sector

Resources outperformed Industrials across all size indices with Small Cap Resources the best performing, rising by 7.4%.

By dint of its size, the 10% gain for BHP Group ((BHP)) led index gains, but lithium stocks IGO ((IGO)), Mineral Resources and Lynas Rare Earths ((LYC)) rose by 22%, 17% and 28%, respectively.

Fortescue Metals Group ((FMG)), which climbed 6.7%, and Rio Tinto ((RIO)) up by 5.4%, lagged the sector though outperformed the market. Given the iron ore price was down slightly over July, the strong returns from BHP Group, Rio Tinto and Fortescue Metals Group are at least partly due to their large dividends, notes Macquarie.

Technology sector

In the month of July, technology stocks underperformed the broader market, with the ASX technology index falling -5.2%.

In the US, the Nasdaq100 technology index rose 2.4%, while WAAAX stocks in Australia fell by -9.3%.

Regarding of WAAAX stocks, Afterpay’s market cap represented 43% of the WAAAX names in July. Given its size, Credit Suisse notes it will represent a major change to the ASX-listed technology sector when its increased share price, as a result of its deal with Square Inc, is included in August figures.

[WAAAX: WiseTech Global ((WTC)), Afterpay, Altium ((ALU)), Appen ((AX1)), Xero ((XRO))]

Within the technology index for July, the best performers were Weebit Nano ((WBT)), which rose 58%, Envirosuite ((EVS)) 44% and Tesserent ((TNT)) increased by 28%. Meanwhile, Marley Spoon fell -31%, Cettire ((CTT)) -24% and Laybuy Group ((LBY)) declined by -19%.

In order of preference, Credit Suisse likes Xero ((XRO)), Life360 ((360)), WiseTech Global, Audinate ((AD8)), Altium and Infomedia ((IFM)).

Sector rotation from technology due to rising interest rates is considered a risk. However, there are multiple companies under the broker’s coverage with strong, multiyear compounding growth outlooks, which are likely to continue to perform well.

Within travel names Credit Suisse continues to see upside for Corporate Travel Management ((CTD)) and Webjet ((WEB)), as global travel resumes in late 2021 and into 2022. Flight Centre ((FLT)) is the least preferred, due to longer term Leisure division concerns.

Australian Banks

The major banks underperformed the ASX200 by an average of around -3.1% in July.

Commonwealth Bank ((CBA)) fell -0.2% though did slightly better than Bendigo & Adelaide Bank ((BEN)) -1.0%, National Australia Bank ((NAB)) -1.1%, Bank of Queensland ((BOQ)) -1.5% and ANZ Bank ((ANZ)) -1.6%. Westpac Bank ((WBC)) underperformed the group falling by -5%.

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