Market Monitor - end June 2023

IMAP Ashley Owen Market Monitor

Synopsis: a quick snapshot of what’s happening in local and world investment markets, and implications for Australian investors.

Welcome to our Market Monitor - a quick snapshot of key events affecting investors and investment markets, especially from an Australian perspective.

In the upper section of the chart below we show Australian shares (All Ordinaries index in green) and US shares (S&P500 index in red), since the start of 2020.

What stands out immediately is the fact that local Australian market almost always follows the US market up and down, regardless of local conditions. (This has always been the case - rare exceptions being the US ‘panic of 1907’, where the Australian market did not fall with the US, and the 1951-2 Korean War inflation spike, when the Australian market fell but the US did not).

Although the Australian share market mirrors the US market in direction almost all of the time, the extent of the relative booms/busts do vary in each cycle. In the current cycle, the US market had a much stronger rally from mid-2020 to early 2022 (Covid stimulus/lockdown tech/online frenzy), and again the rally from late 2022 to now (the current ‘A.I.’ frenzy).

Australia’s tech rallies are much more muted as we only have a very small tech sector here. 

By  Ashley Owen, CFA

Ashley Owen, CFA  Founder & Principal of Owen Analytics
US and AUS shares correlation since 2020

Share markets

June 2023 was a strong month for global share markets, which rose +5% overall. All sectors were up across the board for the first time since last November.

Investors bought up shares everywhere on renewed hopes of ‘soft landings’, as jobs and spending remained relatively strong, and inflation continued to recede.

The best global share sectors in June were ‘cyclicals’ – discretionary spending (eg. Tesla +28%, Toyota +21%), industrials (Caterpillar +20%, and gains in most stocks), materials (Sherwin Williams +16%, Shin-Etsu Chemical +11%), fossil fuel producers (with rising oil and gas prices), and banks. US tech/online stocks kept soaring in the A.I. frenzy (Adobe +17%, Nvidia +12%).

All major countries were up, led by Japan (with a weakening yen, and Softbank +23%).

For the 12 months to June 2023, global share markets in aggregate (MSCI ACWI) ended up +14.4%, or +17.1% including dividends. All sectors were up except real estate and utilities.

The best sectors were tech, industrials, consumer discretionary, banks, fossil fuels, and telco/comms, which were all up strongly for the year.

Australian shares were up more modestly in June, mainly held back by falls in CSL, Transurban, ASX, gold stocks and property trusts.

The big banks posted modest gains for the month as recession fears eased; the big iron ore miners rose on higher iron ore prices and Chinese stimulus measures; fossil fuel producers rose with oil & gas prices on renewed hopes of soft landings; but gold miners fell back with lower gold prices.

For the 12 months to June, the local share market (ASX300) ended up +9.4%, or +14.4% including dividends, and +16.2% including franking credits, putting the local market almost on a par with the global market aggregate for the year.

All sectors here were up here - the best were tech and utilities (AGL shenanigans), iron ore miners, fossil fuel producers, all of the big-5 banks were up except NAB, and all of the big health stocks were up except Ramsay.

How long can the current global share rally last? – see our story ‘Are we there yet? – on rate hikes’

Commodities

In June - oil & gas prices rose, along with iron ore and copper – lifted by hopes of soft landings (or shallow recessions at worst).

Gold prices were down as bank crisis fears eased. Gold had rallied in March this year, not as an inflation hedge (inflation has been receding) but as a safe haven in the Swiss/US regional bank crisis (Bitcoin also rose for the same reason in the bank crisis). In the 12 months to June – most commodities prices were down, especially fossil fuels – with global slowdown fears and recessions in Europe.

Gold was up a fraction over the 12 months, but has once again failed to provide its much-touted inflation hedge. (Gold rose when inflation was negative in 2020, but then fell as inflation peaked in 2022).

Aussie dollar

In the upper section of the chart we also show the AUD/USD exchange rate. As a ‘risk’ currency, the Aussie dollar generally mirrors the direction of the local share market, and this is clearly evident in the chart.

The AUD fell heavily with shares in the 2020 covid sell-off, then rebounded with shares in the Covid stimulus rally to early 2021, fell with shares to late 2022, and then has stayed more or less flat, like Australian shares, in the 2023 US tech/online rally.  

Interest rates

In the lower section of the chart, the dotted lines show short term interest rates in both markets, the circles highlight interest rate cuts and hikes, and the solid lines show yields on 10 year government bonds (Australia green, US red). 

In June 2023, the RBA made its 12th rate hike to 4.1%, specifically referring to the Fair Work Commission's 5.75% wage rise in the prior week as a key reason for the need to keep hiking interest rates to slow spending, with wages rising without gains in productivity. Australian rate hikes have been later, slower, and lower than US rate hikes, so it is no surprise that Australia still has higher inflation than the US.

The US Federal Reserve hit the pause button in June after its 10th rate hike in May, but it also warned of further rate hikes ahead. (see ‘Are we there yet? – on rate hikes’ )

Inflation continued to ease in most markets in June, but gathering fears of entrenched inflation saw bond prices fall, resulting in bonds posting had another negative month as bond yields rose in Australia, US, UK, but were mostly down a little in Europe with the recession there.

For the 12 months to June, bond markets posted nil to slightly negative returns as bond yields rose around the world, especially UK, Europe, and the US. (Returns on bond markets in 2022-3 were virtually zero, but better than the double-digit, worst-in-a-century losses for bonds in the prior 2021-2 financial year).

For longer term returns on bonds and other asset classes see ‘The BIG picture’ 

Another key development for the month was the failed military mutiny on 23-24 June by Yevgeny Prigozhin, leader of Wagner group’s mercenary army fighting Putin’s war on Ukraine. The crisis lasted just 24 hours, but it signalled a possible acceleration of the end of the war, and this prospect boosted share markets late in the month. On the other hand, the crisis also raised fears that a cornered and isolated Putin may resort to desperate measures (like the cornered and isolated Hirohito in late 1941).

Watch out for our next round-up of investment markets at the end of July 2023 !

About

This article is written by Ashley Owen, CFA and the views expressed are his own.

Ashley is a well known Australias market commentator with over 40 years experience.

Formal qualifications:
• LLB, LLM - University of Sydney
• BA (economic history, international relations) – Deakin University
• Grad Dip, Applied Finance & Investment - Securities Institute of Australia (FINSIA)
• CFA Charter – CFA Institute

Membership & associations:
• CFA charter holder
• Signatory to the UN Principles for Responsible Investment
• Occasional member, Education Advisory Board Working Committee of the CFA Institute (US)

Next Events

IMAP's 2024 Advice in Action Conference

In 2024 this IMAP Advice in Action Conference puts the use of technology and digitisation in the spotlight for Advisers & Clients

Reaching "best practice" level in a digitalised advice business is a challenge to every advice practice.. our speakers will help you get on the right page by exploring

  • Getting centred on platforms' roles in helping your busienss to grow
  • How to go paperless for new & emerging clients, and provide relevant service to existing clients
  • Helping the next generation be safer for their financial future
  • Making the most of multi-generational relationships with families and more...

WHEN & WHERE

23rd July 2023 - Melbourne CBD - "Zinc"
25th July 2023 - Sydney CBD - "Amora on Jamieson

REGISTER USING THE LINK BELOW FOR EARLY BIRD RATES BEFORE 30 JUNE 2024

IMAP's 2024 Advice in Action Conference

‍The IMAP Retirement Masterclass is held in the mid afternoon following the Sydney IMAP Advice in Action Conference

‍The IMAP Retirement Masterclass is hosted by BlackRock and addresses all the issues that are important to understanding how to serve this critical market:

Seats are limited to 40 people

  • Portfolio construction for income stream portfolios
  • What are retirees’ key emotional issues? 
  • How will the Industry Funds look to dominate this critical segment
  • How can practices develop effective strategies to address this market?
  • What are the true multiples of capital they need? 4 times, 10 times or 25 times?
  • How should you engage with retirees so they understand how you can help? 

Hear from leading experts who can help you shape your strategy to meet the needs of the retiree market.

James Kingston – Head of Retirement, BlackRock on what they are doing to assist advisers in  this market here and globally

Ashley Owen – former CIO Standford Brown and leading writer on how to help clients determine their personal spending capacity and the impact of changing life expectancy 

Ben Hillier – Director Retirement AMP, on what retirees think about wealth transfer and the regulatory changes you need to understand

Jonathan Scholes – Head of Advice Findex on the reality of serving this market every day, in person, at scale  

WHEN & WHERE

2.30pm 25th July 2023 - Sydney CBD - The Hart Room level 1 "Amora on Jamieson"

REGISTER USING THE LINK BELOW

IMAP's Managed Account Awards 2024 are here.

Optimising Clients' Portfolios in 2024

The IMAP 2024 Managed Account Awards provide our industry the opportunity to recognising best in class for Managed Account Licensees, Boutique Licensees, Innovators, and Investment Asset providers plus Responsible Investing Portfolios.

The Awards have showcased a wide range of providers who are recognised for their work and accomplishments. (see IMAP Past events for more details)

Entries are now closed and judging is commencing - the finalists in each category will be announced on 1st August 2024

IMAP wishes everyone the best and please ask the Awards team how we can help

IMAP's Managed Accounts Central  exhibition is at the FAAA Congress 2024 in Brisbane

IMAP's Managed Accounts Zone exhibition is at the FAAA Congress 2024 in Brisbane

IMAP's Managed Account Zone enables advisers to talk with a selection of managed account service providers to ask questions and find out how effective implementation of managed accounts may be of benefit to your advice practice.

The FAAA 2024 Congress is being held in Brisbane from Wednesday 27th to 29th November 2024, and this year we welcome the following managed account providers exhibiting at the Managed Account Zone

The 2024 Managed Account Central features

Contact us

Email
This email address is being protected from spambots. You need JavaScript enabled to view it.

 

Phone
0414 443 236