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  • Writer's pictureMarcus Bogdan

January 2024 Investor Update

The US Federal Reserve held interest rates steady this month, signalling a rate cut would be unlikely in March. Post the decision, the 10-year US Treasury yield dropped 10 points to 3.96%, finishing the month at 3.99%.

 

In January, the ASX 200 recorded a 1.2% increase, driven by Energy (+5.2%) and Financials (+4.9%) sectors, and partially offset by the decline in the Materials sector (-5.7%). By end of January, the Australian equity market gained 14% on the October lows, reaching an all-time high at 7681pts.

 

We have had 2 inflation prints locally. The CPI has declined from a peak of 8.4%/year in December 2022 to 4.3%/year in November 2023, and 3.4%/year in December 2023. Important for the outlook for monetary policy, the Q4-23 trimmed mean CPI is 4.1%, below the Reserve Bank of Australia’s forecast of 4.5%. Yet, spending was weak toward the end of 2023. Retail trade fell by 2.7% in December, below the market consensus of -1.7%.

 

Update on Blended Australian Equities Portfolio


At a portfolio level, Medibank (MPL), BHP (owned with less weight than benchmark) and NAB were notable contributors. The Materials sector underperformed, taking a 5% fall in iron ore price to US$133/tonne, with BHP absorbing more than half of the losses. Reflecting the recent optimism around softer inflation, interest rate cuts and a benign credit cycle, banks have seen a broad rise in share prices. NAB was the strongest amongst the big four banks, rising 6.2% for January, reflecting the better than expected credit cycle and favourable business mix.

 

Negative contributors to portfolio performance include Pilbara Minerals (PLS) and CSL (owned with less weight than benchmark). The share price of PLS, as a pure lithium producer, felt the fluctuations faced by Australian lithium producers, with disappointing lithium prices and uncertainty in the near-term outlook for lithium demand from global EV sales. Heath Care was a notable positive contributor for the ASX 200 uplift in January, driven by the recovery from an overly negative sentiment surrounding stubborn staffing shortages and elevated costs.

 

Update on Australian Equities Income Portfolio


At a portfolio level, Medibank (MPL), BHP (owned with less weight than benchmark) and NAB were notable contributors. The Materials sector underperformed, taking a 5% fall in iron ore price to US$133/tonne, with BHP absorbing more than half of the losses. Reflecting the recent optimism around softer inflation, interest rate cuts and a benign credit cycle, banks have seen a broad rise in share prices. NAB was the strongest amongst the big four banks, rising 6.2% for January, reflecting the better than expected credit cycle and favourable business mix.

 

Negative contributors to portfolio performance include Pilbara Minerals and CSL (owned with less weight than benchmark). The share price of Pilbara Minerals, as a pure lithium producer, felt the fluctuations faced by Australian lithium producers, with disappointing lithium prices and uncertainty in the near-term outlook for lithium demand from global EV sales. Heath Care was a notable positive contributor for the ASX 200 uplift in January, driven by the recovery from an overly negative sentiment surrounding stubborn staffing shortages and elevated costs.


Outlook

In the immediate term, our focus is on the upcoming February earnings season for ASX listed companies. Consensus Earnings Per Share expectations for the ASX 200 is negative, while ASX 200 is trading at a slight premium, reflecting hopes of an imminent easing cycle. This is occurring before any material earnings outlook changes, though could prove justified if earnings recovery catch up. We remain cautious, observing limited room for further valuation expansion. In particular, we expect more moderate top line growth with the orderly decline in inflation, margins remain under pressure from elevated interest expenses and labour costs.

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