March 2024 Quarter in Review

The March quarter saw the ASX200 close 306 points higher at 7,897 points, a 4% increase, extending the market run since November 2023. The Reserve Bank (RBA) held rates at 4.35% stating inflation control is the highest priority. While inflation is slowly returning to target range, between 2-3%, at current policy settings, the economic outlook remains highly uncertain with the RBA reiterating their determination to return inflation to target.

State of Australia

The Australian economy remains resilient with low unemployment and rising house prices outweighing concerns of an economic slowdown, persistent inflation and the highest interest rates in twelve years.

ASX Reporting Season

In February ASX200 companies reported half year results for the six months to December 2023. As a group these companies provide a fair representation of the broader economy with expenses growing faster than revenues and profits falling 35% on average. With company profits under pressure and dividends being broadly maintained corporate cash balances have fallen. In summary company CEOs’ report a improving outlook after weathering  a challenging operating environment consisting of higher interest rates, cost of living crisis, inflation and geopolitical uncertainty.

Limberg Asset Management Portfolio Positioning

The elevated level of the Australian Sharemarket poses increased risks with the price to earnings ratio substantially above long-term averages, suggesting company valuations are stretched. The key risks continue to be Chinese economic slowdown, political tensions and the valuation disparity between large and small companies on the ASX.

Income holdings in portfolios continue to perform recording another quarter of consistent income with minimal signs of distress reported. With inflation remaining more entrenched than forecasters believed the updated outlook is for interest rates to remain elevated for a longer period resulting in higher income payments.