Global equity markets recovered sharply in April as markets focused on stimulus efforts and optimism that COVID-19 cases were peaking in the developed world. The value of the Australian Dollar increased against all major currencies, somewhat dampening the increase of overseas investments when measured in Australian dollar terms. Global investment grade credit spreads contracted significantly over the month (i.e. the market’s perceived riskiness of lending to high quality companies decreased).

The stimulus measures announced by the Australian government in March started to be implemented during April. These measures include:

• Two one-off $750 payments to welfare recipients;
• A doubling of the Jobseeker (unemployment) payment to $1,100 per fortnight;
• The introduction of the $1,500 fortnightly JobKeeper allowance for employers to pass on to employees to keep them in work
• The ability for individuals impacted by the shutdowns to access two separate $10,000 tranches of their superannuation once in this financial year and one the next financial year.

Despite the enormous $200bn+ stimulus measures (approximately 10% of GDP) the Australian government has applied to combat the economic effects of COVID-19, the government maintained its AAA credit rating as measured by S&P Global Ratings, although the outlook for the AAA credit rating turned negative from its previous stable outlook.

Unemployment numbers in the United States reached levels not seen since the Great Depression. Multiple consecutive weeks of elevated unemployment claims saw a total of 30 million workers file for unemployment benefits due to the coronavirus over the past month and a half, and the US unemployment rate is now expected to surpass 20%. The IMF forecasted the worst economic downturn since the Great Depression, with global GDP estimated to shrink by 3% in 2020.

Incredibly, for the first time in history, the price of the May West Texas Intermediate (WTI) oil future, a contract that requires owners to take delivery in Cushing, Oklahoma, dropped below $0 during April with a closing price of -$37.63 per barrel on the last day of trading, due to storage shortages. Demand for oil dried up due to large swathes of the global population being in lockdown, leading to less transportation and use of the commodity. In addition to reduced demand, an increase in supply occurred when an OPEC agreement expired in early April. The expiry removed oil production quotas, and Russia and Saudi Arabia began producing more oil. The combination of reduced demand and increased supply resulted in the extreme price decline.

The Prime Minister of the United Kingdom, Boris Johnson, contracted COVID-19 in late March and was placed in intensive care during April. Mr. Johnson recovered and was released from hospital a few days later, and he resumed performing his prime ministerial role by the end of the month.

COVID-19

Cases of COVID-19 infections continue to increase along with the associated casualties. As of 30 April 2020, the WHO Situation Report has the confirmed cases of infection at over 3.3 million people from over 200 countries, leading to over 230,000 deaths worldwide. Developed countries with strong healthcare institutions and enforced lockdown measures in place appear to be seeing peak cases in April, with reported daily cases decreasing. There is still cause for concern about future outbreaks. As an example, Singapore, a country that was well prepared for the coronavirus outbreak with strict contact-tracing, quarantining and travel restrictions, is experiencing a second wave of transmissions from citizens and migrant workers returning from overseas.

Australia and New Zealand are two of the standout performers on the global stage to date when it comes to reducing the health impact caused by the coronavirus. Both countries benefit from being remote islands that closed their borders swiftly and implemented self-isolation measures. The Australian government has recently developed a mobile application called COVIDSafe (based off Singapore’s Tracetogether software) designed to help find close contacts of COVID-19 cases. The app aids state and territory health officials to quickly contact people who may have been exposed to COVID-19. The contact information stored in people’s mobiles is deleted on a 21-day rolling cycle and Prime Minister Scott Morrison noted that although the app is not mandatory, it has been flagged as a necessary step in determining when relaxation of social distancing can occur.

There has been substantial investment in the development of a vaccine with universities, government agencies and biotechnology companies across the globe working to find and test a candidate. The World Health Organisation (WHO) have stated there are over 70 potential candidates for a vaccine. In the best case scenario a vaccine is still 12 months away with a further 6 months to produce and distribute en masse. There are a number of challenges to developing a vaccine, such as the virus being difficult to penetrate due to its protective oily coating and the chance that immunity will only last for a relatively short period of time. Reaching herd immunity in such situations will be difficult. COVID-19 serology tests detect human antibodies produced in the days after a person is infected with the virus. Serology tests may allow governments to determine whether their populations are approaching herd immunity levels, which is estimated to require at least 60% of the population to have been infected.

Equities

All major foreign equity markets posted strong positive returns in April. Developed markets (excluding Australia) returned 10.0% on a currency-hedged basis (and 3.6% in Australian dollar terms), performing similarly to emerging markets which returned 8.8% in local currency terms. The worst international performer was the United Kingdom’s FTSE 100 Index which returned 3.9% for the month.

The Australian stock market generated a return of 8.8% during April, with all 11 sectors contributing positively. Consumer Staples, Utilities and Financials were the worst performing sectors returning between 2.4% and 2.8%. The best performing sector was Energy which returned 24.8% (after being the worst performing sector in March), closely followed by Information Technology.

From a developed market sectoral perspective, results were qualitatively similar to the Australian stock market, with all sectors producing strong positive returns. Consumer Discretionary and Energy were the best performing sectors, returning 16.7% and 15.3% respectively in local currency terms. Utilities was the worst performing sector, increasing 2.9%, and Consumer Staples was the second worst performing sector, returning 5.5%.

Bonds

The Australian government bond yield curve steepened over April as two-year yields decreased by 0.03% and ten-year yields increased by 0.13% amidst quantitative easing by the Reserve Bank of Australia targeting maturities up to 4.5 years in length. Volatility in ten-year Australian government yields stabilised significantly compared with March, with yields ranging from a low of 0.68% to a high of 0.93% during April.

Major global government bonds saw decreasing yields across the two- and ten-year durations in April. Chinese government bond yields at the shorter duration of two years fell the furthest, reducing by 0.58% as the People’s Bank of China cut interest rates by 0.2%, whilst the United Kingdom’s government bonds yields reduced the most over the ten-year timeframe, by 0.13%.

Currencies

The Australian dollar strengthened against all major currencies over the month due to risk on sentiment following perceived market bottoms in March. The AUD increased by 6.9%, 6.7% and 6.3% against the Euro, Swiss Franc and Chinese Renminbi respectively.

The Australian Dollar finished the month at 0.6512 US Dollars, up 3.8 US cents or 6.2% over the month.

Commodities

The price of WTI and Brent crude oil diverged over the month, possible due to idiosyncratic storage concerns with the deliverable WTI contract, with the former dropping 8.0% and the latter rising by 11.1% during April. Industrial metal prices increased 1.4% on average, with copper being the standout performer increasing 5.7%. In precious metals, the price of gold increased 6.9% and silver marginally outperformed gold returning 7.1% for the month.

Performance of key markets:

Asset class	Index	Month (% change)	FYTD (% change)	1 year (% change)
Australian Shares	S&P/ASX 200 Acc. Index	8.8%	-13.8%	-9.1%
International Shares	MSCI World Ex Aust Unhedged A$	3.6%	2.9%	3.5%
International Shares	MSCI World Ex Aust Hedged A$	10.%	-5.4%	-5.8%
US Shares	S&P 500 Index	12.8%	0.6%	0.9%
UK Shares	FTSE 100 Index	3.9%	-17.9%	-17.1%
Japanese Shares	Nikkei 225 Index	6.7%	-3.2%	-7.2%
Australian Listed Property	S&P/ASX 200 A-REIT Index	13.7%	-25.4%	-20.3%
Australian Fixed Interest	Bloomberg AusBond Composite Index	-0.1%	3.6%	6.4%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.0%	0.8%	1.1%
Currency	AUD/USD	6.2%	-7.2%	-7.6%

Returns are for periods to 30 April 2020. Past performance is not an indication of future performance.