June 2023 Quarter in Review
The ASX200 closed relatively flat for the quarter increasing 25 points or 0.36% to 7,203 for the June quarter. Interest rates remain a key focus for markets, with the Reserve Bank of Australia (RBA) announcing its second pause in interest rates after twelve rate increases applying pressure disproportionately across the Australian economy. The good news from the RBA is strengthening signals suggesting inflation has peaked although elevated from target levels. However, cost of living pressures is set to drive the inflation narrative with electricity, rent and housing costs rising and minimum wage increasing 5.75%, leading to market pundits forecasting a further two rate increases in the coming months.
State of Australia
The Australian economy remains tough with low but raising unemployment currently 3.7% and moderate but easing growth to 2.3%. The challenges ahead continue to be inflation remaining above target, wages growth showing signs of accelerating and household’s savings deteriorating. The National Budget has benefited from ongoing low unemployment and elevate commodity prices expected to deliver an increased surplus of $19 billion. The additional surplus is expected to assist in slowing inflation however the increased revenue has been compared to a sugar hit and structural issues remain.
Portfolio positioning
With increased media speculation from softening economic outlook, fears of a recession are rising. However, currently both equity and credit markets are showing a relaxed attitude to the prospect of a recession with low volatility and reasonable credit spreads although the bond market suggests its time to be careful with short term interest rates higher than forecast long term rates. With the bond market inversion suggesting a period of increase uncertainty on the horizon we continue to favour holdings with increased certainty of earnings. Our preference for income producing holdings continues with limited, if any, additional return in chasing equity holdings. We remain vigilant for investment opportunities when market volatility again presents reasonable prices.
Limberg Asset Management
The income producing assets held in client portfolios continue to perform and deliver consistent income. With the interest rate cycle likely to be approaching a turning point we continue to monitor portfolios for appropriate balance. The Australian equity market statistics suggest that companies are trading around long term average valuations in an environment of increased uncertainty in this scenario we remain cautious and highly selective with portfolio additions.