article 3 months old

October In Review: Shares Flat As Bond Yields Rise

Australia | Nov 04 2021

This story features APPEN LIMITED, and other companies. For more info SHARE ANALYSIS: APX

Losses in the industrial and energy sectors outweighed information technology gains leading to a -0.1% total decline for the ASX200 in October as Australian 10-year bond yields continued to climb.

-ASX200 saw a marginal decline of -0.1% (total return) during October
-Growth outperformed Value and Information Technology was the best performing sector
-Australian 10-year bond yields increased by 60 basis points

 

By Mark Woodruff

The ASX200 closed out October -0.1% lower on a total return basis (including dividends). This is the second consecutive month of falls after the -1.9% decline in September.

In local currency terms, the MSCI World Developed Market World index increased by 5.5%, largely due to a 7% rise in the S&P500 in the US during a strong earnings season. The equivalent Emerging Market index rose by just 0.9%, on caution related to the Chinese property sector and weakness in Chinese technology stocks.

The Australian stock market suffered from higher-than-expected inflation and the pricing-in of rate hikes, according to UBS. Australian 10-year bond yields increased by 60bps to 2.09% [last 1.84%], while US 10-year US yields only rose 6bps to 1.55% [last 1.58%].

Small-caps were preferred over mid and large-caps, and Growth outperformed Value by 1.8%.

Information Technology was the best-performing sector rising by 2.1%, followed by Health Care which climbed 1%. Meanwhile, Industrials led declines with a -3.2% fall, while Energy and Consumer Staples declined -2.7% and -2.3%, respectively.

ASX100 best and worst

The best performing ASX100 stocks during October were Appen ((APX)) which jumped by 20%, Oz Minerals ((OZL)) 11.6%, Reliance Worldwide Corp ((RWC)) 11.4%, JB Hi-Fi ((JBH)) 10.9%, Challenger ((CGF) 10.5% and Newcrest Mining which increased by 9.9%.

The worst performers were Star Entertainment Group ((SGR)) which fell by -18.1%, Washington H. Soul Pattinson and Co ((SOL)) -16.8% and Domino's Pizza Enterprises ((DMP)) -15.6%, Mineral Resources ((MIN)) -13.9%, Aurizon Holdings ((AZJ)) -11.1% , and Rio Tinto which fell by -9.9%.

Emerging companies

The Small Ordinaries Accumulation index was up 0.9% in October, outperforming the ASX100 by the same margin.

Within the index, Small Resources rose by 6.5% (versus an 8.2% rise for the ASX100 Resources) and Small Industrials fell -0.6% (versus the -0.9% decline for the ASX100 Industrials).

The best performing small-cap sectors in October were Materials, Information Technology and Real Estate which rose by 9%, 4.3% and 2.4%, respectively. Meanwhile the worst performing were Energy, Consumer Staples and Health Care, falling by -3.8%,-2.4% and -1.6%, respectively.

For individual stocks, the best performers were Nick Scali ((NCK)) which rose by 32%, Australian Ethical Investment ((AEF)) 24% and Life360 ((360)) which climbed 23%. 

The worst performers were Marley Spoon ((MMM)) which collapsed by -31%, EML Payments ((EML)) -24% and Infomedia ((IFM)) which fell by -21%.

Banks

Banks outperformed the broader market by around 2% in October as 10-year bond yields continued to rise.

While Macquarie believes there may be further near-term gains from increasing yields, intense competition limits any structural appeal.

Should current spreads be maintained, it’s estimated ANZ Bank ((ANZ)) and Westpac Bank ((WBC)) will receive a bigger margin tailwind relative to Commonwealth Bank of Australia ((CBA)) and National Australia Bank ((NAB)). [Westpac has since rebased its margin expectations.]

In the medium-term, higher rates may result in an economic slowdown (negative for Banks), however, the direct impact from higher rates is positive, in Macquarie’s opinion.

The broker has Outperform ratings for ANZ Bank, National Australia Bank and the regional banks.

Financials ex banks

There was a mixed October performance from Financials ex-Banks, notes to Morgan Stanley.

Consensus upgrades for FY22 and growing green energy tailwinds propelled Macquarie Group ((MQG)) 11% higher, while Computershare ((CPU)) rose a further 4% on the potential for rising US interest rates.

On the downside, worse-than-expected outflows for Pendal Group ((PDL)) and Platinum Asset Management ((PTM)) led to falls of -19% and -14%, respectively.

Rising forecasts for claim costs had a negative effect on insurers, with Suncorp Group ((SUN)) falling by -6% and Insurance Australia Group ((IAG)) down -2%.

Consumers

Within the Consumer sectors, Retail outperformed and rose by 2.2% for October, largely due to the end of lockdowns. Meanwhile, Staples continued to show weakness as at-home consumption fades.

For Staples, Macquarie prefers Coles Group ((COL)) over Woolworths Group ((WOW)) for its lower multiples, while within the Discretionary sector, the broker recently upgraded its rating for JB Hi-Fi to Outperform, in anticipation of record Christmas trading.    

During October the outperformers in the Discretionary sector included GUD Holdings ((GUD)) which climbed by 19%, JB Hi-Fi 11% and Super Retail Group ((SUL)) which rose by 6%. 

On the flipside, Dominos’ Pizza fell by -16%, Kogan ((KGN)) -10% and Flight Centre ((FLT)) was down by -7%.

The best performers in Staples were Metcash ((MTS)) and Coles, while Costa Group ((CGC)) declined by -11%, Inghams Group ((ING)) -10% and Treasury Wine Estates ((TWE)) fell by -7%.

REITs

Real Estate Investment Trusts were up 0.4% over the month, despite the 60bpt rise in the Australian 10-year bond yield.

Credit Suisse believes the rise in yield was somewhat offset by easing of lockdown restrictions, which provided some optimism across the sector. Having said that, the broker feels there is more than a recovery story at play, as evidenced by its sector forecast for FY22 funds from operations (FFO) growth of 10.7%.

The analyst likes the property fund managers Goodman Group ((GMG)) and Charter Hall Group ((CHC)) while Mirvac Group ((MGR)) is preferred in the large-cap diversified space. Meanwhile, for neighbourhood retail Charter Hall Retail REIT ((CQR)) stands out, and Scentre Group ((SCG)) is liked for its regional mall exposure.

Credit Suisse doesn’t rule out more M&A activity for the sector though excludes any takeover premiums in its forecasts.

Outperformers for the month included Aventus Group ((AVN)) which jumped by 8.2%, BWP Trust ((BWP)) 7.9%, Charter hall Social Infrastructure REIT ((CQE)) 7%, Arena REIT ((ARF)) 6.1%  and Hotel Property Investments ((HPI)) which increased by 5.6%.

Underperformers for the month included HomeCo Daily Needs REIT ((HDN)) which fell by -7.1%, Centuria Capital Group ((CNI)) -5.3%, Mirvac Group -3.1%, Lendlease Group ((LLC)) -2.7% and APN Convenience Retail REIT ((AQR)) which declined by -2.0%.

Commodities

The CRB Commodity Index increased by 3.8% over October.

Brent crude oil rose 7.5% to US$84.4/bbl.

Iron ore prices fell by -4.6% to $US113/t, continuing on from the -25.2% slump in September.

The gold price increased by 1.5% to US$1,783/oz, while in base metals aluminium fell -5.0%, copper rose 6.3% and nickel jumped by 8.4%.

Hard coking coal and thermal coal rose by 3.9% and 2.5%, while uranium was unmoved at US$43.10/lb.

Foreign Exchange

The US Dollar Index (DXY), a measure of the value of the US Dollar relative to a basket of foreign currencies, closed up around 4% in October at 94.23.

The Australian dollar also rose by 4% during the month to close at US75.11 cents.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

360 AEF ANZ APX AQR ARF AVN AZJ BWP CBA CGC CHC CNI COL CPU CQE CQR DMP EML FLT GMG GUD HDN HPI IAG IFM ING JBH KGN LLC MGR MIN MMM MQG MTS NAB NCK OZL PDL PTM RWC SCG SGR SOL SUL SUN TWE WBC WOW

For more info SHARE ANALYSIS: 360 - LIFE360, INC

For more info SHARE ANALYSIS: AEF - AUSTRALIAN ETHICAL INVESTMENT LIMITED

For more info SHARE ANALYSIS: APX - APPEN LIMITED

For more info SHARE ANALYSIS: AQR - APN CONVENIENCE RETAIL REIT

For more info SHARE ANALYSIS: ARF - ARENA REIT

For more info SHARE ANALYSIS: AVN - AVENTUS GROUP

For more info SHARE ANALYSIS: AZJ - AURIZON HOLDINGS LIMITED

For more info SHARE ANALYSIS: BWP - BWP TRUST

For more info SHARE ANALYSIS: CBA - COMMONWEALTH BANK OF AUSTRALIA

For more info SHARE ANALYSIS: CGC - COSTA GROUP HOLDINGS LIMITED

For more info SHARE ANALYSIS: CHC - CHARTER HALL GROUP

For more info SHARE ANALYSIS: CNI - CENTURIA CAPITAL GROUP

For more info SHARE ANALYSIS: COL - COLES GROUP LIMITED

For more info SHARE ANALYSIS: CPU - COMPUTERSHARE LIMITED

For more info SHARE ANALYSIS: CQE - CHARTER HALL SOCIAL INFRASTRUCTURE REIT

For more info SHARE ANALYSIS: CQR - CHARTER HALL RETAIL REIT

For more info SHARE ANALYSIS: DMP - DOMINO'S PIZZA ENTERPRISES LIMITED

For more info SHARE ANALYSIS: EML - EML PAYMENTS LIMITED

For more info SHARE ANALYSIS: FLT - FLIGHT CENTRE TRAVEL GROUP LIMITED

For more info SHARE ANALYSIS: GMG - GOODMAN GROUP

For more info SHARE ANALYSIS: GUD - G.U.D. HOLDINGS LIMITED

For more info SHARE ANALYSIS: HDN - HOMECO DAILY NEEDS REIT

For more info SHARE ANALYSIS: HPI - HOTEL PROPERTY INVESTMENTS LIMITED

For more info SHARE ANALYSIS: IAG - INSURANCE AUSTRALIA GROUP LIMITED

For more info SHARE ANALYSIS: IFM - INFOMEDIA LIMITED

For more info SHARE ANALYSIS: ING - INGHAMS GROUP LIMITED

For more info SHARE ANALYSIS: JBH - JB HI-FI LIMITED

For more info SHARE ANALYSIS: KGN - KOGAN.COM LIMITED

For more info SHARE ANALYSIS: LLC - LENDLEASE GROUP

For more info SHARE ANALYSIS: MGR - MIRVAC GROUP

For more info SHARE ANALYSIS: MIN - MINERAL RESOURCES LIMITED

For more info SHARE ANALYSIS: MMM - MARLEY SPOON AG

For more info SHARE ANALYSIS: MQG - MACQUARIE GROUP LIMITED

For more info SHARE ANALYSIS: MTS - METCASH LIMITED

For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED

For more info SHARE ANALYSIS: NCK - NICK SCALI LIMITED

For more info SHARE ANALYSIS: OZL - OZ MINERALS LIMITED

For more info SHARE ANALYSIS: PDL - PENDAL GROUP LIMITED

For more info SHARE ANALYSIS: PTM - PLATINUM ASSET MANAGEMENT LIMITED

For more info SHARE ANALYSIS: RWC - RELIANCE WORLDWIDE CORP. LIMITED

For more info SHARE ANALYSIS: SCG - SCENTRE GROUP

For more info SHARE ANALYSIS: SGR - STAR ENTERTAINMENT GROUP LIMITED

For more info SHARE ANALYSIS: SUL - SUPER RETAIL GROUP LIMITED

For more info SHARE ANALYSIS: SUN - SUNCORP GROUP LIMITED

For more info SHARE ANALYSIS: TWE - TREASURY WINE ESTATES LIMITED

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION

For more info SHARE ANALYSIS: WOW - WOOLWORTHS GROUP LIMITED