Disappointing third-quarter close for Australian share market

The Australian share market ended a sluggish month with a drop of 2 per cent following a significant sell-off on the last day.

Despite the rallying cries of the June 2020 quarter, the third quarter finished in slow decline – down 13 per cent for the calendar year.

During a fairly robust end of March to June recovery – despite the COVID-19 shut-downs – the ASX200 reached a peak of 6167 on August 19.

However, it then dropped slowly to finish the quarter at 5815. This is 18 per cent down from the market peak on February 20.

Share market resilience factors

As the COVID-19 crisis hit, there was concern that a market recovery would not be sustained.

However, government stimulus measures, hopes of a vaccine, and significant gains on global markets such as in the US, helped the market remain resilient and allay fears.

The uncertainty caused by the pandemic, a recession, and record government stimulus spending meant August’s earnings reporting season was eagerly anticipated.

Aggregate profits were down 38 per cent on the previous year, causing companies to cut or defer dividends and instead focus on lifting cash holdings.

Many companies also raised additional capital to shore up balance sheets and gain flexibility to weather the coronavirus storm, increasing the total of capital raisings to $30 billion for 2020.

Winners and losers

A change in consumer behaviour during the pandemic has provided an earnings boost for some companies and market sectors, producing positive results.

Supermarkets benefitted from shoppers hoarding and a public shift from eating out to dining at home. Strict lock downs and work-from-home orders encouraged spending on home-office equipment, home leisure and technology, as well as an increase in online shopping overall which boosted other retailers.

However, this uplift was offset by the crushing effect of the enduring COVID-19 crisis on the travel, hospitality, and tourism sectors which desperately tread water as they await a vaccine and a reopening of borders.

Hope and risk remain

As Australia slowly opens up again, company earnings should positively respond but as government stimulus rolls off and with a US election looming, risks remain.

It is likely further gains in the market will stay more sector and stock specific, and careful investment selection will continue to be key for delivering returns for investors.

If you need to re-think your portfolio or investments during this challenging period, it’s important to consult with a wealth management expert.

You can speak to one of our trusted tax and wealth management specialists at LDB about your investments by calling (03) 9875 2900 or filling in the contact form below.