Australian shares have recorded their worst monthly fall since August 2015 during October, with every single sector on the benchmark index closing the month firmly in the red.
The S&P/ASX 200 closed Wednesday with a 25.2 point, or 0.4 per cent gain, to 5830.3. But the benchmark finished October down 377.3 points, or 6.1 per cent.
“October has been an ugly month for global equities, erasing the years gains across multiple indexes,” said Saxo Capital Markets market strategist Eleanor Creagh.
“The sharp rise in US government ten-year yields up to a seven-year high above 3.2 per cent at the start of the month caused market participants to sharply reconsider asset prices as Treasury rates are the foundation for valuation across all asset classes.”
Energy shares were hit hard during October, pushing the sector down 10.2 per cent. The Morrison-led government unveiled a raft of market intervention measures designed to force down electricity costs hurting listed energy retailers while the softening price of crude hurt local oil stocks.
Woodside Petroleum shares fell 9.7 per cent to $34.85, Origin Energy slid 11.7 per cent to $7.29, Oil Search closed the month 14 per cent lower at $7.77 and Beach Energy shares dropped 17.8 per cent to $1.76.
The information technology was the worst performing sector during October, as local tech stocks followed the poor performance of the US-listed FAANG [Facebook, Apple, Amazon, Netflix and Google] stocks. Afterpay Touch shares plummeted 30.4 per cent to $12.49 during the month, Wisetech Global fell 27.3 per cent to $16.05 and Appen slid 23.8 per cent to $10.64.
The major mining stocks also fell during the month as base metal prices weakened across the board amid heightened trade war concerns. BHP Billiton shares fell 7 per cent to $32.21, Rio Tinto fell 3 per cent to $76.40 and South32 slid 7.7 per cent to $3.62.
AMP had a month to forget as its shares fell 22.6 per cent to $2.47. The company announced it was selling its life insurance division and shedding its New Zealand wealth management and advice business.
Bellamy’s Australia shares fell 29.3 per cent to $7.23 in October after the company flagged a fall in first-half sales compared with a year ago. The infant formula company is still waiting to receive a crucial permit to sell its products in Chinese stores and said that full-year sales would be at the lower end of its guidance.
The listed gold miners saw big gains during the month as precious metal prices lifted on the back of volatility in the equity market. Newcrest Mining shares rose 6.2 per cent to $20.61, Evolution Mining advanced 12.5 per cent to $2.98, Saracen Mineral Holdings lifted 31.4 per cent to $2.45 and St Barbara closed the month 19.2 per cent higher at $4.16.
Morgans lifted its recommendation on budget jewellery chain Lovisa from ‘hold’ to ‘add’, saying the recent de-rate provided a good opportunity for investors to buy. The broker said the company had an attractive business model, quick store payback, less Amazon risk and the potential for large scale global rollout. It said it believed the group was capable of exceeding the broker’s store rollout forecasts in the coming years and that 2019 could be the year the group company starts talking about footprint potential in pilot regions. The broker downgraded its EPS forecasts for 2019 by 8.2 per cent and for 2020 and 2021 by just over 10 per cent on the back of the company’s weaker trading update and while it did downgraded its target price from $10.93 to $8.06, a drop of 26.3 per cent, it does believe the company may have been oversold after its 18.5 per cent fall on Tuesday.
What moved the market
Markets across the globe have been rattled during October, with all ten largest countries (by market capitalisation) in MSCI’s World Index now trading lower than they started the year. Markets like the US, France and Australia, which had risen the the months leading up to October, have fallen so sharply during the month that they have wiped their gains from the previous nine month. Markets in Hong Kong and Germany, which were already weaker for the year, have extended their losses, with Hong Kong now down more than 15 per cent for the year. Japan lost more than 10 per cent during October alone.
The price of aluminium hit a 14-month low on Tuesday over concerns that the heightening of the US-China trade war would dampen global growth. US President Donald Trump warned that billions of dollars worth of new tariffs would be levelled against China if a trade deal wasn’t possible, intensifying selling pressure in the commodity markets. China is the biggest consumer of industrial metals in the world and accounts for more than half of global aluminium demand. While aluminium’s fall on the London Metal Exchange on Tuesday was only a mild 0.8 per cent, it pushed the metal to its lowest level since August 2017.
The British pound hit an 11-week low on Tuesday, as ratings agency S&P stirred fears over a “no deal Brexit”, forecasting a recession, unemployment highs last seen in the financial crisis, house prices falling by 10 per cent and inflation jumping to 4.7 per cent. “With the clock ticking the risk of the UK crashing out of the EU in a disorderly Brexit is growing,” said City Index senior market analyst Fiona Cincotta. “This fear is starting to be reflected in the value of the pound. The reality is starting to sink in, that there is a very real possibility that a no deal Brexit could very soon be a reality.”
The Consumer Price Index rose 0.4 per cent for the September quarter according to Australian Bureau of Statistics figures, following on from a 0.4 per cent rise during the previous quarter. The market had been expecting a 0.5 per cent rise for the quarter. “Annual growth in the CPI fell back below 2 per cent in the September quarter 2018,” said ABS chief economist Bruce Hockman. “Modest rises in housing costs, including rents, utilities and property rates, and a fall in child care out-of-pocket expenses, saw a subdued rise in the CPI this quarter.” The Aussie dollar fell as much as 0.4 per cent following the data release.