February review: ASX outperforms

Australia | March 03, 2022

Gains in the energy and materials sectors offset technology losses, leading to a 2.1% total return for the ASX200 in February as Australia outperformed global equity markets.

-ASX200 gained 2.1% (total return) in February
-Value continues to outperform growth
-Energy and Materials were among the top performers while Technology lags behind
-JP Morgan plans nine U.S. interest rate hikes in the next 12 months
-Australian 10-year bond yields climbed 13 basis points to 2.14%

Marc Woodruff

The ASX200 closed February with a total gain of 2.1% (including dividends).

From a broader perspective, the index is still down -7.6% from its peak in August last year.

The Australian market’s February performance was an outlier among its global peers and outperformed the MSCI Developed Markets Index by 648 basis points (in US dollars). The S&P500 in the US fell -3% while Europe ex-UK fell -4.3%. Meanwhile, the Nasdaq lost -3.4%, taking its year-to-date contraction to over -10%.

Since the start of 2022, markets have been rocked by fears of rising interest rates and rising geopolitical tensions as Russia first threatens and then invades Ukraine. These two forces have seen the MSCI World Index fall for two consecutive months, the first time since September and October 2020.

More positively, JP Morgan is leaning on history to suggest that stock markets remain generally resilient in the wake of Federal Reserve rate hikes and geopolitical tensions.

The local market received a significant boost from the full inclusion of BHP Group ((BHP)) in the index following the unification of its corporate structure, having abandoned its dual listing with London. The materials sector now makes up 25.1% of the index, down from 19.2% previously, and the world’s largest miner has taken over from Commonwealth Bank ((CBA)) as the largest weighting in the index. the index.

In Australia, the trend for Value stocks to outperform Growth continued.

Large caps held up better, reversing January’s losses, while their mid and small cap counterparts trended lower again.

In terms of sectors, Resources outperformed Industrials, with the Energy (8.65%) and Materials (5.25%) sectors posting strong performances, along with Commodities (5.7%) and banks (4%). Meanwhile, the technology sector continues to be a drag, with the discretionary sector also fading during the month.

In money markets, JP Morgan is above the market consensus in predicts nine U.S. interest rate hikes and the U.S. cash rate is expected to peak at 2.75% in the third quarter of 2023. For Australia, only one interest rate increase is expected by the end of the year, with an expected peak of 1% by the third quarter of 2023. The differential between the two countries is evident in the extent to which companies have referenced inflation in the respective earnings seasons, the broker suggests.

Meanwhile, Morgan Stanley is telling investors that if geopolitical tensions begin to ease, they will most likely look back to the first six weeks of the calendar year. It was a period characterized by persistent inflationary signals, rising rates and the continued drive of central banks to normalize monetary policy settings.

In the local currency market, the Australian dollar stood at 72.63 US cents at the end of February, up 2.8% over the month.

Best and worst stocks in the indices

Within the ASX50stocks with the highest returns included South32 ((S32)) which gained 24.9%, Northern Star Resources ((NST)) 24.4%, Woodside Petroleum ((WPL)) 23.8%, Newcrest Mining ((NCM)) 19.6%, Cochlear ((COH)) 15.8% and Endeavor Group with a return of 14%.

The worst performers in the ASX50 were Xero ((XRO)) which lost -17%, Seek ((SEK)) -8%, Aristocrat Leisure ((ALL) -7.6% and Sonic Healthcare ((SHL)) which lost -7.7%.