ASX climbs 4.2pc in May as fallen stocks find favour

Australian shares have ended a second month higher after a lift in investor confidence driven by the early removal of restrictions and signs the pandemic's economic damage may not be as extreme as first thought.

The S&P/ASX 200 Index ended May at 5755.7 points, with an astonishing rally from the banks this past week leaving the benchmark 233.3 points, or 4.2 per cent, higher over the month.

While the optimism was checked by souring relations between Beijing and Canberra, the index has gained 26.6 per cent since its March 23 low but remains 19.6 per cent below its February 20 record high of 7162.5 points.

The month was characterised by share price moves tied to rising commodity prices, loosening restrictions and improving expectations for the domestic economy.

The process of unwinding restrictions kicked off early after lockdowns reached a peak in April, with the turning point and pace of easing coming in well above the six-month period that was initially expected.

The "reopening trade" was boosted by similar moves in Japan, Europe and the US, even where the number of active cases stirred debate about whether such an easing might be too early.

The resulting improving confidence, combined with the addition of another growth driver, helped Afterpay soar as investors re-evaluated its exposure to risks moving forward.

The company hit a low of $8.01 on March 23 but, aided by a 52 per cent rise in May, closed at $47.41 this week.

The major lenders eased on Friday after a jaw-dropping rally in the previous three sessions that propelled the S&P/ASX 200 banks index up 16.5 per cent.

Westpac closed 6.4 per cent lower at $17.22 on Friday, ANZ fell 4.5 per cent to $17.89, National Australia Bank closed down 5.2 per cent lower at $17.81 and Commonwealth Bank slid 3 per cent to $63.75.

But despite the rebound for other heavily sold sectors, it was not until this week that investors returned to examine the share prices among the big four banks.

"That was the sector that was really left behind," said Tribeca Investment Partners portfolio manager Jun Bei Liu.

"We saw most of the sectors ... particularly those lockdown-impacted sectors, start to recover in the last month and a half. And the banks ... there was so much bearishness, so extreme valuation differential really just drove that rebalance."

Australia's resources companies were also among the best performers the past month as higher commodity prices boosted earnings expectations in gold, energy and iron ore.

BHP shares gained 7.1 per cent since its April finish to close at $34.64, Rio Tinto rose 6.7 per cent on the month to $93.40, and Fortescue Metals Group climbed 16.2 per cent to $13.90.

The market advanced as cash also poured back in as the economy tracked towards normalisation and heavily sold companies hard hit by containment measures began to rebound.

Reopenings see hardest hit stocks surge

In travel, Webjet shares gained 35.3 per cent to close at $4.14, Qantas Airways gained 3.4 per to $3.99 and Flight Centre shares advanced 19 per cent to end the week at $13.08.

Southern Cross Media was one of the best performers among the largest 200 companies after shares in the company gained 67.9 per cent over the month.

After hitting a low of 11¢ just last month, Southern Cross Media shares closed at 23¢ on Friday. A factor that may have boosted the stock is the expected increase in people choosing to drive rather than use public transport, which could see its radio network audience grow.

Despite falls on the broader market, PointsBet shares further rallied through the final session of May as sporting codes in Australia and overseas resumed or announced plans to. The National Rugby League had players return to the field on Thursday night for the first match since the 2020 season was suspended at the end of March.

PointsBet fell to a low of $1.19 just over two months ago but has since rebounded to within 7.8 per cent of its January record close of $6.29 after it soared 35.5 per cent in May.

Optimism led to capital being reallocated from defensive stocks in health and consumer staples into technology, resources, consumer discretionary, and, then in a sudden flood at the month's end, the major banks.

Health giant CSL fell sharply on the month, dropping 10.7 per cent to $276.22, and Woolworths slid 1.2 per cent to $35.34.