September Quarter Review

The first quarter in the New Financial Year saw the ASX200 trade in a sideways channel closing at 5,816, down 1.4% for the period. Volatility in the Australian market remains high with the frequency of daily movement exceeding 1% proving the rule rather than the exception. The Australian sharemarket remains preoccupied with current events fuelling market uncertainty:

• unfolding pandemic and whether an effective vaccine can be discovered and manufactured in enough quantity to prove effective
• upcoming US Election in November
• international relations with China
• the delayed Australian Federal Budget

Current State of Australia

The Australian economy, to the end of June, recorded a 7.3% contraction in GDP on the back of bushfires, drought, cyclones, floods and a pandemic. To date the Australian economy continues to perform better than was feared when COVID first emerged. The Reserve Bank of Australia (RBA) maintains it will do all within its power to support and speed the recovery of the Australian economy. To that end the RBA has set interest rates to ‘effectively zero’ at 0.25%pa and it is unlikely to increase interest rate for the next 3 years notwithstanding market talk of a possible further rate cut to 0.1%pa. The unemployment rate is predicted to peak at 9-10% with economists predicting a decline to 7-8% by year end 2021 largely thanks to the JobKeeper program.

The Australian property market consists of many smaller regional markets each with its own characteristics driving prices. To date prices have remained relatively stable but the effects of unemployment and no inbound migration will weigh on property prices by suppressing demand.

The Australian sharemarket despite high uncertainty has performed strongly from its lows in March. The recovery is beginning to broaden and benefit more stock sectors which is a good sign for markets. However, in all assets much depends on maintaining control of the COVID curve.

Portfolio Positioning

We continue to remain conservative in our portfolio exposures and endeavour to look though short-term market noise to assess the opportunity and probability of success of businesses over the next 5 years. We believe the current market will remain challenging for some time however not without opportunity. To pursue this potential, we continue to communicate with invested businesses frequently to determine if underlying trends have changed. We maintain a preference for holdings in income generating defensive assets and cash for opportune market fluctuations but are cognisant of the enormous amounts of money created daily by central banks and elevated cash holdings of professional fund manages two variables that may push global stock markets higher in the near future in short order.

We would like to take this opportunity to remind you investing is not easy. It takes a great deal of time and effort on our part and large amount of trust on yours. Personally, I think yours is the harder part of the bargain. We would like to thank you for your sustained confidence in what has been a trying and amazing year.

Limberg Asset Management, now settled in our new office in North Ryde, is actively taking on new clients with no minimum criteria provided we believe we can improve their financial outcomes.