Lonsec Market Commentary – March 2019
Australian equities rose 10.1% over January and February, theS&P/ASX 200 Index paused in March, returning 0.7% before regaining momentum in the first week of April. Over the past year, the ASX has delivered a total return of 12.1%, driven predominately by the 50 largest shares, while the small cap index has returned only 5.8%. Outside of real estate, the top performing sector in March was Communications (+4.0%), with gains from Telstra (+6.1%) and TPG (+4.4%), which is still awaiting the ACCC’s approval for its Vodafone merger despite announcing its plans in August last year.
While equity markets stabilised, bond markets sounded alarms for investors as rapid falls in long-term yields resulted in an inverted yield curve (historically a signal that a recession is on the way). The US 10-year Treasury yield fell from 2.72% to 2.41% over March, while the spread between the 10-year and 2-year yields fell as low as 11.8 basis points. In Australia it was a similar story, with the 10-year yield dropping from 2.10% to 1.77%, a decline of nearly 60 basis points since the start of 2019.
With the possibility of a May election, the federal Budget was handed down a month before the regular budget season, presenting tax measures to please key voter groups, a further boost to infrastructure spending, and the much-vaunted return to surplus. As expected, the underlying cash balance is forecast to return to a surplus of $7.1 billion in 2019-20, or 0.4% of GDP. The
government is assuming GDP growth of 2.25% this financial year, rising to 2.75% in 2020-21 (with consumer spending forecast to grow at similar rates)
(Lonsec March 2019, Issue Date: 09-04-2019)