Market Update August 2020

Global equity markets produced strong returns in August as companies broadly exceeded earnings expectations and vaccine developments progressed.  

The value of the Australian Dollar increased against major currencies, somewhat dampening the returns of overseas investments when measured in Australian dollar terms.

Global investment grade credit spreads continued to contract over the month (i.e. the market’s perceived riskiness of lending to high quality companies decreased).
The Reserve Bank of Australia (RBA) left interest rates unchanged in August at 0.25% and continues to target 0.25% out to the three-year maturities on Australian Government bond yields. The RBA updated their baseline scenario such that “the Australian economy is expected to contract by about 6 per cent over 2020, before growing by around 5 per cent over 2021 and 4 per cent over 2022 … under the baseline scenario, the unemployment rate is expected to peak at around 10 per cent by the end of this year.” [1]  The Federal Reserve (the United States central bank) announced a major policy change in August by targeting an average inflation rate of 2% and by shifting its focus on employment to consider “shortfalls of employment from its maximum level”. The Chairman of the Federal Reserve, Jerome Powell, stated “…our new statement indicates that we will seek to achieve inflation that averages 2 percent over time. Therefore, following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.” [2] Equity markets did not react strongly to this announcement because the policy change was anticipated and it is unclear how the Federal Reserve will adjust its position or employ financial instruments to achieve their new policy objective. However, prospects of allowing the US economy to “run hot” in future caused weakness in the United States Dollar.

Further steps towards a tech cold war between the United States and China were taken in August with the U.S. Department of Commerce announcing that it would restrict Huawei (and 38 of its affiliates) from obtaining any semiconductor chips that are produced with American technology or software. Huawei warned that the

Chinese government would retaliate if the rule is implemented, escalating the battle for global technological dominance.

At the Democratic National Convention, on the 20th of August, Joe Biden formally accepted the nomination to become the Democratic representative in the November presidential election. Joe Biden selected senator from California, Kamala Harris, to be his running partner. The selection of Harris, the first black female running partner in history (with Jamaican and Indian immigrant parents), is expected to broaden support for the Biden campaign in key minority demographics. The United States presidential election has become a much closer race than anticipated over the last couple of weeks. Joe Biden was a clear 10 percentage points ahead in the average of polls at the end of July. However, since then his lead has dropped to 6 percentage points at the end of August. 


Reported global coronavirus case numbers exceeded 25 million at the end of August, with a total of over 850,000 fatalities. Daily reported cases of infected people continue to hover between 200,000 and 300,000 on a global basis. India saw reported COVID-19 cases climb throughout the month and peaked at the highest daily reported case of any country to date at just under 80,000 on the 30th of August. Sweden, the only major country to impose minimal restrictions due to the outbreak of the coronavirus, appears to have “flattened the curve” significantly throughout August. Although the country remains in the top 10 in the world in terms of fatalities per one-million population, it is behind countries such as Belgium, Spain, and the United Kingdom and is broadly comparable with Italy, Brazil and the United States.

There was continued development towards a vaccine for COVID-19 in August, with nine candidate vaccines in Phase 3 trials (involving thousands of volunteers) including two vaccines that were approved for limited use. One vaccine approved for limited use is developed by a Chinese company CanSino Biologics, and after passing Phase 2 trials it will be applied to Chinese military personnel. The other vaccine that has been granted approval for early use was developed in Russia by the Gamaleya Research Institute, named Sputnik 5 [3]. The Australian Government has signed a letter of intent with major vaccine developers in Oxford to distribute the vaccine to the Australian population at no cost to individuals if it proves successful. Commentary from political figures and scientists suggests a vaccine is becoming more likely to be available by the end of 2020.

Australia experienced a drop in reported cases of infection from the second wave of COVID-19 towards the end of August. The significant increase in cases in July and August saw fatalities rise from 196 at the end of July to 657 at the end of August, by far Australia’s worst month. Cases were predominantly located in Victoria, which entered Stage 4 lockdown restrictions on the 2nd of August. These restrictions are expected to remain in place for a further 2 weeks, however, Victorian Premier Daniel Andrews has announced he will unveil the re-opening roadmap on Sunday the 6th of September [4]. New Zealand unfortunately lost its coronavirus free status in August as four cases of unknown origin appeared in Auckland. The city went into immediate lockdown and contact tracing began. 


Foreign equity market returns increased substantially throughout August. Developed markets (excluding Australia) returned 6.2% on a currency-hedged basis (and 4.2% in Australian dollar terms), outperforming emerging markets which returned 2.2% in local currency terms. The best international performer was the United States S&P 500 Index (for the second consecutive month) which returned 7.2% for the month.

The Australian stock market generated a return of 2.8% during August, with 6 out of 11 sectors contributing positively, 3 approximately flat and 2 producing negative returns. Information Technology, Consumer Discretionary and Real Estate were the best performing sectors returning 15.3%, 7.8% and 7.3% respectively. Utilities and Communication Services decreased the most, by 5.9% and 5.2% respectively. 

From a developed market sectoral perspective 10 out of 11 sectors produced positive returns. Consumer Discretionary, Information Technology and Industrials were the best performing sectors, returning 11.9%, 10.5% and 8.2% respectively in local currency terms. Utilities was the sole sector to produce a negative return returning -2.0%.


The Australian government bond yield curve steepened significantly over August with the two-year yield decreasing by 0.014% and the ten-year yield increased by 0.167%.

Major global government bond yields increased across two-year and ten-year terms. 


The Australian dollar strengthened against all major currencies over the month by at least 1% due to the prevailing risk-on sentiment. The AUD increased by 3.3%, 3.3% and 2.2% against the Japanese Yen, United States Dollar, and Swiss Franc respectively.

The Australian Dollar finished the month at 0.7376 US Dollars, up 2.3 US cents over the month.


The price of crude oil was less volatile in July compared with previous months. WTI rose 5.8% and the price of Brent crude oil increased 4.6% due to continued subdued global output. Industrial metal prices increased 5.5% on average. The price of gold reduced 0.4% for the month of August, however, in early August the price of gold surpassed the $2,000 USD mark (per Troy Ounce) for the first time in history. Silver increased substantially by 15.4% over the month.

Performance of key markets
Asset class Index Month (% change) FYTD (% change) 1 year (% change)
Australian Shares S&P/ASX 200 Acc. Index 2.8% 3.3% -5.1%
International Shares MSCI World Ex Aust Unhedged A$ 3.5% 4.1% 6.7%
International Shares MSCI World Ex Aust Hedged A$ 6.2% 9.6% 12.1%
US Shares S&P 500 Index 7.2% 13.2% 21.9%
UK Shares FTSE 100 Index 1.8% -2.5% -14.3%
Japanese Shares Nikkei 225 Index 6.6% 3.9% 14.1%
Australian Listed Property S&P/ASX 200 A-REIT Index 7.9% 8.6% -17.7%
Australian Fixed Interest Bloomberg AusBond Composite Index -0.4% -0.1% 1.6%
Australian Cash Bloomberg AusBond Bank Bill Index 0.0% 0.0% 0.7%
Currency AUD/USD 3.3% 6.9% 9.5%

Returns are for periods to 31 August 2020. Past performance is not an indication of future performance. 

Note: returns quoted in the document or the table do not correspond to changes in member balances directly.  All returns quoted are before fees and tax and do not take into account foreign exchange rate effects on returns domiciled internationally.