Investment Market Update – April 2022

Rising inflation and interest rates continued to rattle investment markets

The US, UK, Australia, Canada, New Zealand, Korea and India have all raised their cash rate over April and May. Central banks have commenced a tightening cycle, so cash rates will move progressively higher over the next 12 to 18 months.

The majority of central banks have also flagged the beginning of quantitative tightening strategies, where bonds held on the central banks’ balance sheets are slowly removed to the private sector.

Many analysts expect this strategy will reduce liquidity in global capital markets and add further pressure on higher interest rates.

With no signs of a resolution to the conflict in Ukraine, ongoing high commodity prices, particularly in food and energy, continue to add to cost pressures across global supply chains.

China’s COVID lockdowns in Shanghai and Beijing have also added pressure to supply chains, particularly given the uncertainty around the length of the lockdowns, as well as the effect this will have on China’s manufacturing production.

These uncertainties continue to weigh on capital allocations globally, with the majority of asset classes once again performing poorly over April.

Global growth stocks continue to bear the brunt of the move to protect capital. This was highlighted by a fall in the tech-heavy Nasdaq Index of 13.3% over April.

It remains my expectation that the current volatility in share markets is a regular market correction, which investors are usually exposed to annually.

April 2022
 
Australia – ASX200
-1.2%
US – Down Jones
-4.9%
US Nasdaq
-13.3%
UK – FTSE
+0.4%
Japan – Nikkei
-3.5%
China – Shanghai Composite
-6.3%
Financial Year to Date
 
Australia – ASX200
+1.7%
US – Down Jones
-4.4%
US Nasdaq
-15.0%
UK – FTSE
+7.2%
Japan – Nikkei
-6.8%
China – Shanghai Composite
-15.1%

Australia continues to perform relatively well, due to our commodity production and export strength; the election campaign, which continues to throw money at voters; and households still holding substantial savings built up over the COVID lockdowns.

It remains my expectation that the current volatility in share markets is a regular market correction, which investors are usually exposed to annually.

News over the month

GrainCorp upgrades earnings guidance for the 2022 FY

In early April, GrainCorp management announced that earnings for 2022 will be in the range of $590m to $670m. This compares with their previous guidance in the range of $480m to $540m.

Management cited increasing strong demand for Australian grain and oilseeds, good conditions for the upcoming planting season, and elevated prices due to the Ukraine conflict.

Graincorp’s shares were up 22% in April.

Note – GrainCorp shares were recently removed from the Kauri Wealth Investment Portfolio following the April gains.

Lendlease Group – 2022 sees the end of the reset for the company

The COVID pandemic has been the primary driver of the delay in the ability of Lendlease Group to monetise its extensive international development pipeline, which currently sits at over $112 billion.

Recently, management announced that 2022 would complete the reset for the company. Over the last couple of years, directors have refocused the company by exiting its construction division, simplifying the group’s operating model and removing $160 million in costs.
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Lendlease Group advised that conversion of its substantial order book into work-in-progress has commenced. The company appears to have passed its trough in earnings during the 2022 year, paving a path for material earnings growth once it reaches its production targets from FY24.

Lendlease shares were up 9.4% in April.

Platinum International Fund – The fund manager deftly navigated the April turmoil

The manager’s focus on global value investing, which ensures minimal exposure to technology stocks, facilitates an ability to take short positions in stocks where risks to the downside are perceived. This has seen the core Platinum International Fund produce a positive return over April, when nearly all share markets produced negative returns.

The Platinum International Fund was up 3.8% for the month.

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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