• Marcus Bogdan

Monthly Investor Update | October 2021

With the Australian equity market having returned more than 70% since the pandemic lows of March 2020, the recovery in stock prices has begun to show signs of moderation. A growing myriad of challenges are weighing on equity markets, including supply chain bottlenecks, energy prices grinding higher, financial deleveraging in China, the persistence of the delta variant, and rising bond yields as central banks begin tightening liquidity conditions. Collectively each of these factors have heighten investor uncertainty.


Yet encouragingly, it is pleasing to observe that the latest AGM and quarterly updates have delivered more positive than negative surprises in terms of current trading conditions and earnings guidance. At a portfolio level 1Q21 results can be classified as:


(*) Upgrade to earnings, - Healius (beneficiary of elevated COVID testing); Goodman Group (lifted FY22 eps guidance to +15%); Macquarie Group (elevated trading & investment income & asset sales); News Corp (stronger than expected digital real estate)


(*) Confirmed guidance – Amcor & Brambles successfully navigated elevated inflation through pass-through cost mechanisms & pricing power. CSL ongoing recovery in plasma collections.


(*) Downgrade to earnings - Westpac disappointing execution on margins and expenses.


The reopening of economies has led to a significant increase in the demand for energy. Global oil demand has rebounded at a time when there is a lack of new supply. The combination of rising demand and shortages in energy supply has ignited prices for both oil and gas. Our portfolios retain an investment in Ampol & Santos as both companies benefit from current favourable industry conditions. Yet the sunset for the fossil industry has begun and it is imperative for energy companies to not only lower their carbon emissions but transition to a greener energy footprint.


In summary, there is growing confidence that we are now facing a clearer path to normalization over the summer months with the end of state lockdowns and the reopening of international borders providing further support of a rebound in economic activity. While monetary policy measures may begin to tighten modestly, we expect fiscal stimulus may re-emerge as we head toward a federal election 1H calendar 2022. Overall, with the earnings expansion expected to continue for the remainder of FY22, our portfolios retain a focus on companies that can deliver long term profit and dividend growth.