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  • Writer's pictureMarcus Bogdan

Investor Update - November 2023

Global equities rallied in November, buoyed by evidence that global inflation was finally moderating to a level that would allow the US Federal Reserve to consider discontinuing interest rate rises, and ultimately looking to cut rates in 2024. The prospect that central banks have successfully tamed inflation without triggering a recession provided renewed optimism for risk assets. Bond yields also rallied sharply after peaking at nearly 5% in October, subsequently falling to around 4.50% by the end of November, to the relief of equities markets.

Undoubtedly, the combination of decelerating inflation and a relatively resilient economy has provided a strong foundation for stock market valuations to rebound. With this backdrop, the ASX 200 rose 5% in November, its largest monthly gain since January 2023.

At a portfolio level, Health Care (+11.8%) and Real Estate (+10.8%) were the strongest performing sectors, while Energy (-7.3%) and Utilities (-6.0%) were the weakest. At a stock level, CSL, Goodman Group, and Cleanaway Waste Management were notably strong performers, while Santos, Woodside Energy, and Treasury Wine Estates weighed on performance.

In November, we increased our exposure to commodities essential to the global energy transition. We initiated a position in Pilbara Minerals, whose wholly owned Pilgangoora Operation is the largest hard-rock lithium mine in Australia and contributed 8% of global lithium supply. While lithium market endured a bear run in 2023, with prices falling ~75% on softening demand and growing global lithium supply, the medium-term fundamentals remain attractive, supported by extensive government legislation on CO2 targets.

With the energy sector falling sharply for two consecutive months, we added to our existing positions in Santos and Woodside Energy. While risks to energy supply from regulatory and geopolitical tensions remain elevated, both stocks are trading on an attractive dividend yield of +4.5% and Price to Earnings Ratio below their 5-year averages.

The immediate risk for inflation and interest rates has eased over the last month, heralding some cautious optimism form equity investors. Nevertheless, the pathway forward will require careful navigation, particularly if inflation remains stubborn, keeping interest rates higher for longer. We are already seeing clear evidence that the higher interest rate environment is progressively weighing on company earnings.

All things considered, a vigilance around earnings resilience and balance sheet strength remains essential to portfolio construction.


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