• Both the S&P ASX/200 and S&P/NZX 50 were modestly up in August according to latest data released 
  • August was not kind to fixed income investors with inflation-linked bonds in New Zealand falling 5%
  • Known as the Fear Indexes, the S&P/ASX VIX changed little over August but the US CBOE VIX jumped 5 points

The race for bragging rights as to whether the Aussie or Kiwi share market won the race in August was pretty much a draw.  Australia’s S&P/ASX 200 gained 1% in August, extending its Q3 gains to 7%, according to data released by S&P Dow Jones Indices, a financial market benchmark provider.  Another 4% is required to bring the benchmark back into black for 2022.

Across the Tasman, New Zealand’ S&P/NZX 50 Portfolio copied the performance of its large-cap Aussie peer, by also adding 1% in August. Microcaps lagged, with the S&P/NSX Emerging Opportunities Index slipping 1%.

The S&P/ASX 200 Energy was the standout performer amongst Australian sectors in August, rising 8% and extending its year-to-date gains to 44%.  It was followed by materials, communication services, industrials, consumer discretionary and healthcare.

Real estate shed 3% during August leading the laggards. Consumer staples, utilities, financials and information technology also lost ground.

August was not a good month for fixed income, in fact it has been challenging time for the sector throughout most of 2022. Outside of treasury bills all reported regional fixed income indices ended the month in the red.

“Inflation-linked bonds in New Zealand were hit particularly hard with the S&P/NZX NZ Inflation-Indexed Government Bond giving up 5%,” the reported noted.

Most Aussies equity factors rose in August. The S&P/ASX 200 Momentum finished first with 4%.  The S&P/ASX 200 Momentum is designed to measure the performance of the top 40 stocks in the S&P/ASX 200 universe that exhibit persistence in their relative performance.

“The wooden spoon went to the S&P 200 Enhanced Value, down 28% during the month but still retaining the lead YTD,” S&P said in its report.

The S&P/ASX 200 Enhanced Value is designed to measure the performance of the top 40 stocks in the S&P/ASX 200 with attractive valuations based on value scores calculated using three fundamental measures: price-to-book, price-to-earnings, and price-to-sales ratios.

The fear index

The CBOE VIX index measures near-term volatility of the S&P 500 benchmark, which is made up of the top 500 largest companies listed on stock exchanges in the US. It measures how volatile the stock prices of these 500 companies could be in the next 30 days.

The ASX 200 index also has a market volatility index, and can be seen under the ticker ASX:XVI.  Just like CBOE VIX,  it tracks ASX 200 index option prices to calculate levels of near-term volatility in the Australian stock market.

As Stockhead’s Eddy Sunarto explains volatility itself is a measure of how fast a stock/index price changes and not about the direction of up or down, but more to do with price swings in either direction. The VIX index is used as a tool to gauge market sentiment, and therefore widely referred to as the “Fear Index”.

So how did the fear indexes perform in August?

“Equity volatility in Australia remained with the S&P/ASX VIX little changed over the month, while the US CBOE VIX jumped 5 points,” the report said.

Strong reporting season boost materials and energy stocks

DNR Capital director and chief investment officer Jamie Nicol told Stockhead volatility could remain in markets for sometime yet as investors adjust to persistent inflation and higher interest rates.

“The market is still digesting a big earnings reporting season, but sectors that drove markets up in the past few months saw significant rotation during August,” he said.

“Dovish commentary from the US Federal Reserve in June was walked back with the Fed Chairman reiterating its commitment to an ‘anything it takes’ attitude to getting inflation under control.

“As treasuries sold off and bond yields drifted back up, we saw interest rate sensitive sectors like REITs and utilities bore the brunt of underperformance.

“Inflationary pressures and commodity prices are driving energy and materials sectors, especially mid miners where a bid for Oz Minerals led the sector.”

Datt Capital founder and chief investment officer Emanuel Datt told Stockhead he was not surprised by the August results.

“Outperformance in the mid-cap sector is largely due to the strong performance in the Materials and Energy sectors over the month of August, which is captured disproportionately in the mid-cap index,” he said.

“The top 10 largest constituents of the index performed better than expected this reporting season.”

“He said some constituents  (companies included in the index) were subject to M&A interest or speculation further adding impetus to the mid-cap index returns for the month.”

Datt said the ASX Volatility Index remains muted due to the well understood path that the RBA has guided to the market ahead of time.

“Broadly, we expect consistent cash rate rises month on month to the end of the calendar year. With consistent forward guidance on monetary policy, the markets are able to price this in well ahead of time and muting equity volatility accordingly.”

And Datt’s parting words as to why Australia is beating the Kiwis.

“Australia doing better than NZ because it has a greater weighting towards materials and mining in the ASX indexes as well as a broader, more diversified and far larger economy, ” he said.

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