Markets – October 2024

The ASX commodities sector was also seen as a beneficiary of the policy change, with most of our major resource stocks up following the long-awaited stimulus announcement. Whether it will prove robust enough to break China’s deflationary spiral remains to be seen.

The ASX Bank Index was down 1.3% in September as global investors switched between our market’s barbells – from bank stocks to commodity stocks. This was a reversal of their strategy compared to the previous months.

China suffers from the three Ds: Debt (too much leverage used to build too many houses); Deflation (house prices are now falling at their highest rate in nine years); and Demographics (the former one-child policy has caused a significant ageing population).

Time will tell whether the Chinese government stimulus can negate the impacts of the three Ds, but I remain extremely cautious about investing in China.

Central banks are winning the battle against inflation …

Success in reducing inflation is also one of the main drivers of market cheer. The inflationary surge depressed share markets in 2022, as higher inflation means increased interest rates and lower price-to-earnings multiples. However, its decline has enabled markets to rebound.

In major developed countries inflation peaked around 8% to 11% in 2022. It has now fallen to around 2% to 3%.

… enabling them to cut interest rates

With inflation heading back to targets, nearly 50% of global central banks have been able to start cutting interest rates – including the (US) Fed. Money markets are expecting further easing ahead.

Here in Australia, inflation has been slower in returning to target. Government spending has been the main reason for this, with the budget surplus moving to an estimated deficit of $28 billion this financial year.

Most analysts expect the RBA to start cutting rates in the first quarter of 2025.

Geopolitical threats – the Middle East and the US election

There are currently two main geopolitical threats: the Middle East and the US election.

My gut feeling is that the US economy is so strong that the rationale for change is low. But given the current polarisation of US politics, anything could happen. I expect higher volatility as we come into the result in early November.

Lendlease announces new joint venture with Nippon Steel

Lendlease (LLC) has entered a joint venture with Nippon Steel Real Estate to develop, construct, and manage a $500 million build-to-rent building in Docklands, Melbourne.

The 500-apartment project will be completed in 2026, and at this stage, Nippon Steel will take a 40% stake, with LLC holding the balance. However, it is expected to sell down a further stake as the building nears completion.

This is Lendlease’s third domestic build-to-rent project, following Melbourne Quarter and the Showgrounds site in Brisbane, with the group delivering 2,700 dwellings.

Lendlease has just announced the completion of the sale of its US East Coast construction operations to US construction firm Consigli Building Group Inc. The company also received approval from the ACCC to sell its Australian master-planned communities (housing estates) to Stockland for $1.3 billion.

Lendlease shares are up over 30% since July.