Markets – January 2024

2023 Year in Review – defying the predictions

Australia’s economy stubbornly defied predictions during 2023, escaping the fears of an economic slowdown and ending the year in relatively good shape.

Some had expected an end to the Reserve Bank’s continued cash rate rises during the year. Instead, inflation has been slower to fall in Australia compared with our major trading partners. Some analysts expect further rate rises in 2024. Recent positive news on inflation most likely will keep the RBA on hold for the first half of 2024.

There was also good news for property investors, with an increase in prices in some cities.

On another positive note, superannuation funds bounced back after losses in 2022. SuperRatings reported that the median balanced option is expected to return 8.6% in 2023, after most funds produced negative returns the previous year.

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The big picture

Global economic forecasts for 2023 were also troubled by a number of wildcards during the year.

Many economists were predicting recession in the United States and Europe, and a rebound in China. But the year ended differently, with no recession in the US, Europe struggling but doing better than expected, and China still battling some headwinds.

October brought concerns of a wider Middle East conflict, prompting the International Monetary Fund to revise its outlook for the region. It believes an escalation of the conflict could be far-reaching, and affect tourism, trade, and investment.

Inflation and interest rates

In Australia, economic growth slowed a little on 2022’s result – but still delivered a better return than forecast.

On the latest data available from the end of September, the economy grew by 2.1%. It was the eighth quarter in a row of economic growth.

Even so, a larger-than-expected increase in the population is putting extra pressure on housing and prices, keeping inflation higher.

The rising cost of living is proving harder to tame than hoped or expected – despite continuing cash rate rises.

Consumer prices rose 1.2% during the quarter and 5.4% over the year. On a CPI basis, rents rose 7.6% in the past 12 months – the largest annual increase since 2009.

The Reserve Bank continued its battle to get inflation under control, raising the cash rate five times, to finish the year at 4.35%.

Share markets

Global share markets ended 2023 on a more positive note. In the US, welcome news from the Federal Reserve of an end to rate hikes saw stocks and bonds soar in the final weeks of the year.

During the year, the Dow Jones Index increased by 13.7% and the Nasdaq by 43.4%.

There was mixed news in Asian markets, with a jump of 28.2% on the Nikkei 225 and 18.7% on India’s BSE Sensex. But China’s Shanghai Composite fell 3.7% and the Straits Times Index of Singapore was down 0.3%.

Australia’s share market may not have experienced the heady double-digit returns of some global markets, but it ended the year with a gain of almost 8%, marking its best performance since 2021.


Despite big falls from the peaks of 2022, commodity prices remain high across the board.

Australia’s biggest export iron ore, rose more than 21% as the Chinese government continued to create strong demand by stimulating property and infrastructure development.

Oil prices saw some spikes during the year but steadied by December.

However, the World Bank notes that conflict in the Middle East, together with the disruptions caused by the war in Ukraine, could cause a major oil price shock, pushing global commodity markets into uncharted waters.

As the US dollar gathers strength and Australia’s high inflation figures persist, the Australian dollar will be under further pressure. It ended the year where it began, after recovering from a slide in the second half of the year.

Property market

While rising interest rates usually dampen property prices, by year’s end we saw a remarkable turnaround for some cities, in another result that upended forecasts.

CoreLogic’s national Home Value Index rose 8.1% in 2023, up from the 4.9% drop in 2022 but not at the stellar 24.5% increase recorded in 2021.

It was a patchy performance across the country. House prices rose at more than 1% every month on average in Perth, Adelaide, and Brisbane in the second half of the year. Yet, Melbourne values dropped in November and December; Sydney and Canberra prices barely moved; and Hobart and Darwin prices fell slightly.

Looking ahead

As floods and storms ravage the eastern states and bushfires break out in the West, another tumultuous Australian summer might be mirrored by a chaotic year for the economy, both in Australia and overseas.

The RBA expects economic growth to remain subdued but resilient in 2024, largely supported by construction and infrastructure work.

Meanwhile the rebound in international students and tourism is expected to contribute to robust growth in consumer spending.

The RBA is also confident that inflation will continue to fall throughout the year, but some analysts are predicting at least one more cash rate increase during the year.

Importantly for investors, 2024 will be the first year the COVID period has no influence on markets. Politics and geopolitics will be the major risk factors.

Worldwide, China’s spluttering economy and the outcome of the US presidential election may cause ripple effects across the globe.

In the meantime, markets will be nervously watching the conflicts in the Middle East and Ukraine, as well as China’s threat to blockade Taiwan. Each has the potential to create broader economic challenges.

Sources:  ASX, The Australian, Bloomberg, Morningstar, Forager Funds Management, Westpac, The AFR & The Advant Group.

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

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