Markets – August 2024
A promising start for the financial year, but recent volatility suggests July may have been too good
The start of the new financial year saw share markets bounce strongly, with both the US and Australian markets up over 4%. The rotation out of the tech sector continued, with the tech-heavy Nasdaq Index falling for the month.
The Chinese market continued its fall, weighed down by a struggling property sector, a lack of supportive government policy, and heavily indebted state-owned enterprises. China is a cheap market, with many of the top stocks trading on very low multiples. But investors remain wary while its property market unravels from one of the largest building booms on record.
2023-2024
Most of July’s gains were given up following the Japanese flash crash in early August, but it is pleasing to see that many value stocks now trade at higher levels than at the start of the financial year. The rotation out of last year’s hot sectors continues, with investors preferring to seek out value.
The Australian reporting season commenced this week, offering significant insight into how businesses are faring in the current economic climate.
So far it has been reasonably balanced, with solid results from CSL, Orora Ltd, and Car Group. However, Seek, Cochlear, and Origin updates were disappointing.
Next month’s Kauri update will include a full review of the reporting season.
The property sector recovery commences
The listed property sector has been one of the worst-performing sectors of late, mainly due to issues around higher interest rates and the work-from-home changes following the pandemic.
Property valuations across the commercial and office sectors have seen significant falls, and many developers have collapsed in the residential building sector. Even so, signs of life are returning to the industry.
The ASX A-REIT Index tracks the performance of listed property securities on the ASX and is up 5.8% since the start of the new financial year. Investors are drawn to the attractive valuations and high dividend yields and see a trough in the cycle, especially with interest rates falling worldwide.
Recent data confirms that in the office property sector, average workplace utilisation data (the percentage of total available spaces in an office that is used regularly) came in at the highest level since the pandemic.
Last week, the NSW state government reported a ‘return to the office’ mandate for many of its employees.
This week, both CBA and Telstra reported higher operating costs compared to last year, in part due to higher occupancy costs associated with ‘increased office attendance’.
Office real estate trusts are being re-rated, with Dexus (the most significant player in this space) up 14% since the start of the financial year. Dexus trades on a grossed-up dividend yield of 6.9%.
Sources: ASX, The Australian, Bloomberg, CBA, Morningstar, Minack Advisors, Westpac & The AFR
Kauri Wealth Management is a Fee for Service investment advisory business and as such my advice is built around ongoing personal relationships with my client base. Personalised independent advice is backed up by a breadth of industry knowledge.
I accept a limited number of new clients each year and would be happy to discuss this further with you. Please don’t hesitate to contact me.
Russell Lees
Senior Adviser
Phone: +61 439 852 963
Email: russell@kauriwealth.com.au
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