June Quarter Review

Financial markets fell in the June quarter reacting to the Russian invasion of Ukraine and subsequent re-emergence of inflation. Central Banks around the world have countered generating the first of many interest rate increases. The Reserve Bank of Australia (RBA) made its first interest rate increase in 11.5 years. The ASX 200 recorded a further decline of 12.4% for the quarter closing at 6,568 from 7,500. The ASX200 began falling in April, continued in May and accelerated in June. June ranking as one of the worst months in ASX history accounting for an 8.9% fall.

State of Australia

Unemployment is at historic lows; the RBA indicates further interest rate increases to rein in inflation to the detriment of asset prices like property. Australian household budgets are being squeezed by higher cost of goods, especially fuel, as they wait for wage increases, foreshadowing more difficult times ahead for the economy. Furthermore, predictions of a 3.0% interest rate before years end indicates more pain for Australian households.

The Australian Government is not immune from the RBA increasing the cost of existing government debt, through higher interest rates, causing strain on the new Labour Government’s ability to deliver on election pledges. Treasurer Chalmers foreshadows a tough budget update due late July, likely to prioritise childcare, medicine, restoring the petrol excise and scaling back spending promises.

Portfolio Positioning

For the majority of portfolios, we will continue to maintain a high allocation to income producing investments. These have largely performed to expectations.

The growth type assets have in some cases been aggressively sold down over the past six months particularly in May and June. The sell down generally bears no significance to the quality of the company.

What we do know is, in some instances the selling has related to:

• a change in mandate from institutional holders
• short selling – where an investor borrows shares and sells it on the market, planning to buy it back later for less money
• stocks caught in the wider tech sell down occurring on the US NASDAQ
• end of year tax selling leading into 30 June

In some cases, these growth assets have seen a recovery in their share price since the 30 June reporting date.

The reporting season commences shortly, and we will be posting updates and commentary to our website regarding portfolio stocks and their outlook statements.

Outlook

The RBA’s rapid interest rate increases are creating recession fears for the Australian economy. However, the higher interest rates will result in greater cash returns from income producing assets in your portfolio. The ongoing volatility in the Australian market, will create attractive investment opportunities.

Limberg Asset Management

We are disappointed with returns over the past six months being among our worst in 15 years. However, we remain confident the few stocks responsible for the majority of change in value remain sound businesses with bright futures that the market will reward in time.

Thank you for your enduring trust and continued support over what is extraordinary period in markets. Should you have any question with respect to your portfolio please do not hesitate to contact us.