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  • Writer's pictureMarcus Bogdan

February 2024 Investor Update

The ASX 200 rose 0.8% in February and set its first new high since Augst 2021. The recent rally in equity markets has been driven predominantly by stronger economic growth in the US, and in Australia on better-than-expected December half earnings results.

Overall, for the ASX 200 there were more earnings beats than misses despite ongoing inflationary pressures. Companies continued to benefit from resilient pricing power and a stringent focus on cost control, in addition to the easing of raw material costs and normalisation of supply chains. For instance, the half-year earnings results of Brambles and CSL provided clear signs of improved operating costs.

However, wage inflation and interest expenses were the most significant cost issues for companies in the reporting period. This was particularly evident for Amcor for higher interest expenses and Woolworths for wage cost inflation.

In February, at a sector level there was a sharp divergence in returns. On the positive side, the strongest sectors were banks (+3.6%), Discretionary Retail (+9.7%) and Technology (+19.7%).

  • Technology was the best performing sector, benefiting from the global enthusiasm for AI adoption and a robust earnings growth profile, spearheaded by WiseTech Global. An auxiliary beneficiary to AI and cloud computing was Goodman Group, which exceeded earnings expectations and remains well placed with increasing demand for new data centres globally.

  • Discretionary retail benefited from resilient consumption and a stronger trading update from Wesfarmers.

  • Banking’s latest results highlighted stable operating trends and well-capitalised balance sheets, enabling dividends and share buybacks and spurring optimism among investors.

Nevertheless, valuations now look expensive with Banking’s P/E multiple trading near record highs.

On the negative side, Energy (-5.9%) and Materials (-4.8%) were weighed down by lower commodity prices. At a portfolio level Goodman Group, WiseTech Global, and Pilbara Minerals were notable strong performers. Whereas BHP, CSL, and Resmed weighed on performance.

The recent US and Australian earnings reporting periods have again highlighted that corporate earnings remain resilient despite high interest rates. While earnings growth is expected to slow for the rest of the year, there are tangible signs that the global post-pandemic de-stocking is near completion, signaling that demand is better placed to recover. In aggregate, Australian companies’ balance sheets remain well-capitalised to weather the impact of higher interest costs.

The valuation of the ASX 200 now looks relatively full on a 12-month forward P/E of ~16.2 times, relative to its long-term average of ~14.2 times. At a portfolio level, we remain positioned in industry leaders with strong balance sheets and are well placed to deliver earnings growth through the economic cycle.

Returns are net of fees and assume the reinvestment of distributions. Franking credits are excluded from performance and no allowance is made for tax or wrap platform fees. Inception date for Blended Australian Equity Fund & Australian Equity Income Fund is the 21-Feb-2014 and Concentrated Australian Equity Fund is 28-Mar-2019. Past performance is not a reliable indicator of future performance


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