September Quarter Review

Amongst a fluctuating economic outlook, the Australian market fell 1.43% in the September quarter to close at 6,474, as global Central Banks raise interest rates. The US Federal Reserve has increased interest rates 3% this year. The Reserve Bank of Australia (RBA) has completed six consecutive monthly rate increases after its first increase in over 11 years. The Australian interest rate is currently 2.6%, increasing 2.5% so far this year.

State of Australia

The RBA reiterated its commitment to “whatever it takes to return inflation to target” signalling a higher interest rate should be expected. The RBA is focused on the global market, household spending, wages growth and inflation readings to determine timing and quantum of further interest rate moves.

We believe the average Australian household remain under pressure due to the deflationary effects of higher interest rates, dissipating covid stimulus savings, falling house prices delaying planned spending and anaemic wage growth. However, these factors are balanced against inflationary effects of severe flooding and slated Federal tax cuts benefitting high income earners.

The Federal Government is due to release an updated Budget on October 25, indications suggest a focus on childcare, medicine, restoring the petrol excise and maintaining commitment to stage 3 tax cuts (ie the removal of 37% tax bracket from $45,000 to $200,000).

Outlook

The RBA’s rapid interest rate increases are creating recession fears for the Australian economy. In equity components of portfolios, we are focusing closely on company valuations and their earnings expectations. Defensive elements in portfolios continue to benefit from higher interest rates generating greater cash returns. The ongoing volatility in the Australian market, will create investment opportunities.

Limberg Asset Management

We have reviewed and spoken with management of the stocks responsible for the recent portfolio volatility and are confident they will continue to remain sound businesses with bright futures in time.

Thank you for your enduring trust and continued support during this volatile period in markets. Should you have any question with respect to your portfolio please do not hesitate to contact us.