March 2022 was the strongest month-on-month rally since November 2020. The XJO rose 438.6 points or 6.21%.
A change in sentiment was supported by strong prices in the commodities sector and a risk-on approach from retail investors. The month came to a close with the release of the federal budget. Short-term stimulus will has been measured, so as not to push inflation too far, and should do well to sustain consumer staples. Infrastructure and defence will be well-supported, the latter being an underdeveloped sector of our economy with huge potential. With inflation on the rise and household savings at record levels, investors may be looking for other means of storing (and growing) their savings.
Resources are set to enjoy another super cycle on the back of skyrocketing commodity prices. Russia’s invasion of Ukraine has created a huge supply shortage across a number of key sectors. Russia is a major supplier of oil and gas, used to power energy plants. Woodside Petroleum (WPL.ASX) and Soul Patts (SOL.ASX) – who have major oil and gas holdings – are each up more than 12%. Industries that were falling out of vogue, namely coal, are back in fashion too. Whitehaven Coal (WHC.ASX) returned 34% over the month of March alone. The cutting of Australia’s fuel excise shouldn’t impact equity valuations as the fee is paid directly to government instead of oil companies.
On the other side of the equation Ukraine is a major exporter of grains. Australian agri-businesses Costa Group (CGC.ASX), Elders (ELD.ASX) and crop protection specialist Nufarm (NUF.ASX) each finished more than 14% higher.
Technology wiped off February’s losses as investors moved back out of defensive assets. Information Technology (XIJ.ASX) was especially strong, with the index rising 212 points or 13%. Block Inc (SQ2.ASX) was particularly memorable this month as it ends on a 20% increase from the start of the month. This high didn’t come without its lows as the stock dropped over 10% in one day earlier in the month. WiseTech (WTC.ASX) and Technology One (TNE.ASX) were also at the head of the pack, each up approximately 16% at the end of the month.
A strong outing from technology and electronic vehicle manufacturers, such as Tesla, will usually spread to material producers as well. Take a look at lithium for example; Liontown Resources (LTR.ASX), IGO (IGO.ASX) and Allkem (AKE.ASX) are each valued over 25% higher than the end of February.
Banks recovered from depressed valuations dating back to November last year, with the National Australia Bank (NAB.ASX) and Commonwealth Bank (CBA.ASX) looking to re-test record highs in the near future. Financials are expected to benefit from a higher interest rate environment, as rising inflation will force us into them sooner or later, and this has already begun as we can see the sector being added to portfolios across the board. CBA led the big four with a 13% rise, closely following by NAB at 12%. Smaller cap EML Payments (EML.ASX) returned 25% and Tyro Payments (TYR.ASX) 14%.
Check out what investors were buying and selling on the ASX through Openmarkets in March – our Clearing and Settlement partner and related entity to Opentrader.
April has been a strong month for markets in recent years but there is still a lot of uncertainty. COVID lockdowns in China will threaten demand for commodities, namely iron ore and oil. The OPEC cartel is keeping a tight grip on supply to avoid the negative pricing we saw at the start of the pandemic, but we still could see some downward pressure. Inflation is continuing to breathe down our neck; any unexpected rise could see the reserve bank moving forward plans to increase interest rates and slow economic growth. Up until this point the Russia/Ukraine conflict has surprisingly pushed our markets higher, however, investors should be ready to expect the unexpected. It’s not all doom and gloom; we started March in a precarious position and look where we ended up!
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