Market Update May 2021

Global equity markets performed strongly in May as fiscal support from governments and monetary policy from central banks remained accommodative while economies reopened.

The value of the Australian Dollar fluctuated against foreign currencies, however, the net result was a slight increase to investment returns when measured in Australian dollar terms for the month of May. Global investment grade credit spreads contracted over the month (i.e. the market’s perceived risk of lending to high quality companies decreased).

The Australian Government released the 2021-22 federal budget on 11 May titled “Securing Australia’s Recovery” and is likely to be the final budget for the Coalition government before next year’s election. The budget included the following measures: an extension of the tax offset for low and middle income earners (LMITO), a reduction in small business taxes, vaccine rollout funding, infrastructure spending and aged care facility upgrades [1]. The historically large budget is expected to cost $107 billion, with a peak deficit of 41% of GDP expected to be reached by June 2025. This spending, coupled with a reopening economy, is forecast to help grow the Australian economy by 4.25% in real terms in the 2021-22 financial year.

Inflation was a major discussion point for markets throughout May with the release of the consumer price index (CPI) data for April in the United States. US CPI increased more than expectations and rose 4.2% year-on-year [2], the highest year-on-year change since before the Global Financial Crisis in 2008. Board members of the Federal Reserve were quick to call the spike “transitory” and emphasised that it was only one data point. Supply-side bottlenecks caused primarily by the pandemic as economies reopen have led to price increases, particularly in the energy and commodity sectors. Similar, although not as extreme, upticks in inflationary measures were also seen in other major economies. 

The Reserve Bank of Australia (RBA) met on 4 May to review their policy positions and to discuss the global and domestic economic and financial environments. In the minutes of the RBA meeting it was noted that “inflation expectations had increased from around record lows to be closer to central banks' inflation targets, although central banks in major advanced economies had indicated no intention to dampen monetary stimulus until inflation outcomes were sustainably higher than currently”. The RBA Board reaffirmed their existing policy settings, the primary one being the target for the cash rate of 0.1% [3].


Reported global coronavirus case numbers exceeded 171 million at the end of May 2021, with a total of over 3.5 million fatalities [4]. Reported global daily new cases of infection dropped from close to record levels of 850,000 in early May to around 500,000 by the end of the month. India, Argentina and Columbia were the only three of the top 20 countries (by total reported cases of infection) that saw new peaks in daily cases, with India experiencing a steady decline in reported cases throughout the month.

The global vaccine rollout has been progressing throughout the month of May, with 209 countries having now commenced a vaccination campaign. Six countries have provided over 50% of their citizens with at least one dose of a COVID-19 vaccine, including the United States, United Kingdom and the leader, Israel, with approximately 60% of its population being fully vaccinated. President Joe Biden has pledged 20 million doses by the end of June to foreign nations. Australia lags the developed world substantially with 16% of its population having received at least one dose, with less than 2% being fully vaccinated. Approximately 4.2 million COVID-19 vaccination doses have been distributed throughout Australia at the end the of the month [5].

As of midnight on Thursday 27 May, Victoria went into a strict “circuit breaker” lockdown to contain recent outbreaks and to catch up on contact tracing. In addition to the previous four reasons to leave one’s home, a fifth reason was added, to enable Victorians to obtain a covid vaccination. Other restrictions include online learning for schools, takeaway-only for food and beverage outlets and mask-wearing outside the home. 


Major foreign equity markets produced moderately positive results throughout May. Developed markets (excluding Australia) returned 1.0% on a currency-hedged basis (and 1.2% in Australian dollar terms). Of the major foreign markets, the best performer was the European market (Euro Stoxx 50 Index) which returned 2.3% for the month.

The Australian stock market (S&P/ASX 200 Index) outperformed major foreign stock markets and generated a return of 2.3% during May, with 7 out of 11 sectors contributing positive returns. Financials, Healthcare and Consumer Discretionary were the top performers returning 4.4%, 3.5% and 3.4% respectively. There were two sectors that detracted significantly being Information Technology and Utilities returning -9.9% and -7.0% respectively.

From a foreign developed market perspective, 7 out of 11 sectors produced positive returns. Energy, Financials and Materials were the highest returning sectors with returns of 4.3%, 4.2% and 3.5% respectively. Consumer Discretionary, Utilities and Information Technology were the worst performing sectors returning -1.4%, -1.4% and -1.2% respectively.


The Australian government bond yield curve flattened somewhat throughout May with the two-year yield decreasing by 0.024% and the ten-year yield decreasing by 0.035%. The cash rate set by the RBA remained unchanged at 0.1% in May.

All major developed global government bond yield curves flattened throughout May, with all but European government bonds having yield curves that shifted downward. Over the two-year term, Chinese and United Kingdom bonds decreased the most by 0.082% and 0.047% respectively. Over the ten-year term, the European government bonds were the only major government bonds to increase in yield, increasing by 0.015%. 


The Australian dollar produced mixed results against major currencies, increasing by 0.5% and 0.2% against the Japanese Yen and United States Dollar respectively and falling by 2.5% and 1.4% against the Euro and Swiss Franc respectively.

The Australian Dollar finished the month at 0.7734 US Dollars, up 0.2 US cents over the month. 


WTI oil rose 4.3% and the price of Brent crude oil increased 3.1% over the month due to increased global demand from reopening economies. The S&P GSCI Industrial Metals index increased 3.8% on average, with copper the strongest performer, rising 4.4%. Of the precious metals, the price of gold increased 7.8% and the price of silver rose by 8.1% in May. 

Performance of key markets over relevant time periods to 31 May 2021

Asset class Index Month* (% change) FYTD* (% change) 1 year* (% change)
Australian Shares S&P/ASX 200 Acc. Index 2.3% 25.0% 28.2%
International Shares MSCI World Ex Aust Unhedged A$ 1.2% 21.8% 20.4%
International Shares MSCI World Ex Aust Hedged A$ 1.0% 32.6% 35.6%
US Shares S&P 500 Index 0.7% 37.6% 40.3%
UK Shares FTSE 100 Index 1.1% 17.5% 19.5%
Japanese Shares Nikkei 225 Index 0.2% 31.4% 34.0%
Australian Listed Property S&P/ASX 200 A-REIT Index 1.7% 26.2% 24.4%
Australian Fixed Interest Bloomberg AusBond Composite Index 0.3% -1.5% -1.2%
Australian Cash Bloomberg AusBond Bank Bill Index 0.0% 0.1% 0.1%
Currency AUD/USD 0.2% 12.0% 16.0%

*Percentage change in returns are for periods over the month of May (Month), the financial year 1 July 2020 to 31 May 2021 (FYTD) and for the year 1 June 2020 to 31 May 2021 (1 year). Past performance is not an indication of future performance.


[2] US CPI figure covers the period 30 April 2020 to 30 April 2021





Any general advice on this website has been prepared without taking into account your objectives, financial situation or needs. Before you act on any general advice on this website, you should consider whether it is appropriate to your individual circumstances. Before making any investment decision, you should obtain and read the relevant product disclosure statement which is available on the Website or by calling 1300 033 166 between 8.30 am and 5.30 pm (AEST) Monday to Friday. You may wish to consult an Adviser before you make any decisions relating to your financial affairs. To speak with an Adviser from TelstraSuper Financial Planning call 1300 033 166.