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Equity markets reach new highs

Published September 2020

Equity markets continued to rally in August. The MSCI World Index reached new all-time highs late in the month and exceeded its previous peak before the global pandemic.

It is important to note that the recent rally and much of the previous gains were led by US equities – particularly the big technology stocks that have enjoyed increased consumer demand for technology and digital apps during the lockdowns.

Global shares returned 6.2% and 3.5% in hedged and unhedged terms respectively – as the Australian dollar also rose 3.3% against the greenback.

Australian shares (ASX 300) underperformed their global counterparts, but still produced a strong return of 3.1%. August was dominated by the reporting season with a number of companies delivering better than expected earnings. It is also encouraging to note that there are more companies with earnings upgrades than with downgrades.

The US Federal Reserve met at Jackson Hole in late August and announced a new average inflation targeting strategy. For market observers, this was confirmation that monetary policy should continue to be supportive for the foreseeable future.

The Fed announcements also put more pressure on the US dollar, which has been falling for most of August.

Fixed income markets fell in August, with Australian bonds (-0.4%) outperforming global hedged bonds (-0.7%) in July.

Global economic recovery continues to be patchy

Global economic data continues to be mixed in August. The flash purchasing managers’ indices (PMIs) for both services and manufacturing beat expectations and remained above contractionary territory, with readings of 54.8 and 53.6 respectively.

In the UK PMI data was just as positive, the flash service reading rose to 60.3 for August, however the employment component of the survey was troubling, falling to 38.7.

COVID-19 update

While news on the progress of a potential COVID-19 vaccine generated a lot of interest, cases continued to climb in August. According to the World Health Organisation (WHO), there was more than 25 million confirmed cases globally by month end, a rise of more than 40% during August.

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