Markets – July 2024
It’s been a challenging year for Australian equities
The Australian share market continued to underperform other developed markets during June, with the ASX200 increasing 0.9% compared to 1.1% for the major US index, the Dow Jones.
For the financial year, the ASX200 index increased by 6.7% and significantly underperformed the US indices, with the Dow Jones up 13.7% and the tech-heavy Nasdaq index returning a whopping 28.6%.
2023-2024
The central theme for the year was that investors were prepared to pay increasingly high multiples for any stock connected to AI, chip manufacturers, data centres, and the energy companies providing the electricity to power these sectors.
Many portfolio stalwart stocks were sold down over the year, as investors divested assets to raise capital to participate in the tech rally. For example, Telstra’s share price was down -10.3%, Woolworths fell by -11.5%, BHP was off -5.7%, and Transurban, which owns a monopoly in Australian toll roads, was sold down by -10.5%. Stocks leveraged to the consumer were also down over the year.
But the tide is changing
Last Thursday, the Russell 2000 index, which tracks the performance of US mid-cap stocks and has underperformed all year, rose by 3%, while the Nasdaq tech index fell by 2%. For the first time since 1979, the Nasdaq Index underperformed the Russell 2000 by more than five percentage points, in what appears to be the biggest daily gap on record.
The reason for the gap was the release of US inflation data, which showed that inflation in the US is falling faster than expected and getting closer to the US Federal Reserve target rate. This bolstered confidence that the FED will begin to cut interest rates as soon as September. It would follow cuts last month in Canada and the Euro Union and supports analysts’ view that we are at the start of a global rate-cutting cycle.
As a result, many investors are rotating their stocks. They’re jumping from the large-cap US tech stocks, commonly known as the ‘Magnificent Seven’ (Facebook, Amazon, Alphabet, Nvidia, Apple, Tesla, and Meta – Facebook), to sectors that offer more attractive valuations. The rotation to value stocks is likely to be the central theme for the new financial year. Many market sectors that did not benefit from the tech rally in the last few years will likely be reinvested in as the cycle turns. These sectors include industrials, real estate, commodities and healthcare.
Balanced super funds returned a median of 8.8% over the year
Super Ratings last week revealed that the median return across all balanced super fund options was 8.8% for the financial year. This compares with the previous financial year’s median return of 8.5% and a negative return of -3.4% for the 2022 financial year.
Sources: ASX, The Australian, Bloomberg, CBA, Morningstar, Minack Advisors, Westpac & The AFR
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Russell Lees
Senior Adviser
Phone: +61 439 852 963
Email: russell@kauriwealth.com.au
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