Insights for Investors by Investors

Market roundup – shopping centres, oil in favour


What drove markets in November?

Markets delivered an early Christmas surprise with November’s market performance delivering one of the best months of the entire year. The ASX 200 Index posted a whopping +9.96% gain while the Small Ords rallied +10.20%.

In the US, it was a similar story with the S&P 500 Index posting its best November with a rise of over 11.27%. The bumper result came on the back of heightened investor confidence following a series of positive updates of COVID-19 vaccine efficacy. Hopes are that a successful vaccine will not only herald the end of the pandemic but will usher in a swift economic rebound next year.

It is however, still too early to tell whether the peak has been reached in the spread of Coronavirus as the US is still adding record numbers. One million new coronavirus cases were recorded in the US over the last 5 days. These numbers show a very bleak picture.

Domestically, the Coronavirus spread is well contained. While most parts of the world are reporting the virus as ‘completely and utterly out of control’, Australia is reporting very low numbers, with Victoria posting its 38th day of zero new coronavirus cases and WA reopening its borders to NSW and Victoria. Without jumping the gun, Australia is very close to eliminating community transmission of Coronavirus and is a pandemic success story albeit at a high cost. Australia’s ‘eye watering’ coronavirus deficit is tipped to take decades to pay back. An announcement by the RBA signalled it would undertake a $100 billion bond purchase plan within six months. Bond buying is used to lower long-term government bond yields.

Surprisingly, the Australian market did exceedingly well despite an increasingly hostile China, determined to kneecap Australia at every opportunity. Using trade as its weapon, China blocked a long list of Australian exports from entering the country, to prove a point. Trade games aside, November was a record-breaking month for Australian and Global stocks with a substantial rotation into value and domestic cyclicals from growth stocks looks to be underway. Sectors that did well during the month were: Media +19.20%, Healthcare +10%, Retail +18%, Transport 12.90% and Utilities 15.80%.

The mentioned sectors were driven by the vaccine into recovery mode. Equally as important was the US election outcome that saw Joe Biden as President-elect and the Dow Jones Industrial Average hitting an all-time high of 30,000 points. With one final month remaining, things are finally starting to look good again.

The best five stocks in the ASX 200 for the month of November were all beneficiaries from the re-opening of Australian cities and the announcement of a highly effective vaccine. These include

  • Shopping centre operators: The re-opening saw a resurgence of retail foot traffic in all major shopping centres and hopes of a quick reinstatement of dividends.

  • Online travel: Travel was one of the hardest hit sectors due to restrictions. Both Webjet (ASX: WEB) and Flight Centre (ASX: FLT) were late recovery stocks that only started to track higher once domestic state borders re-opened and travel was permitted.

  • Oil and energy stocks: A collapse in the oil price and the drastic reduction in carbon-based travel i.e. petrol cars & aviation, brought on by the pandemic, pulled energy and oil stocks to historic lows. Naturally, these stocks were the last to recover and had fallen the most.

We’ve put together a shortlist of reasons why investors should be confident going into next month and into the new year.

  1. Investor confidence is back supported by Moderna (NASDAQ: MRNA) seeking clearance for a Coronavirus Vaccine. Most of November’s gains were vaccine driven. If proven successful, a Pfizer (NYSE: PFE) or Moderna vaccine could herald the end of Coronavirus. Both vaccines are more than 90% effective.

  2. The Government’s massive stimulus effort seems to have paid off in supporting businesses and consumers.

  3. The first plane touched down in Australia. A Sri Lankan Airlines flight touched down at Tullamarine signalling a big step towards a return to aviation and tourism normality.

  4. A rotation into stocks that haven’t recovered yet from Coronavirus has only just begun. Investors have started to pile into aviation, tourism, AREITs, and banking stocks.

  5. With retail stores back in full operation, record low rates, and retail businesses receiving stimulus from the Government, the Santa rally is back on. Investors seem to be buying into sectors of the market that look cheap and likely to recover strongly i.e. Tourism.

  6. This will have a knock-on effect as rising consumer spending should cause a rotation back into the banks.

Rotation back into value stocks?

Growth stocks have been the flavour of the month since the end of the GFC. They simply fell out of value. But the onset of a successful vaccine will see a return to investor confidence, rising consumer spending leading to a stronger economy with rising interest rates. Investors looked for growth from companies when growth from the economy was lacking. Looking forward however, the economic recovery looks promising.
Value-based will quickly become the strategy as investors actively rotate back into Financials, Healthcare and a-REITS.  

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