In brief:

We believe an apparent imbalance between the supply and demand of US government debt could lead to higher long-term interest rates regardless of the inflation path. For defensive allocations, we prefer Australian long-term bonds over the US equivalent.

We believe the key drivers of Australian inflation are largely outside of the Reserve Bank of Australia’s influence, meaning it is uncertain whether they will keep raising interest rates. This keeps us neutral on Australian Equities.

The persistent underperformance of China’s equity market has extended to where we now believe the balance of outcomes justifies removing our underweight call to Emerging Markets.

We believe the general interest rate environment will be flat, with the potential for higher interest rates in the near term. This environment has historically been challenging for interest rate-sensitive equities.

To access the full Portfolio Perspectives for October 2023, download the PDF here

 

 

Important Notice: This document is published by Lonsec Investment Solutions Pty Ltd (LIS) ACN: 608 837 583, a corporate authorised representative (CAR number: 1236821) of Lonsec Research Pty Ltd ABN: 11 151 658 561 AFSL: 421 445 (Lonsec Research). LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN: 151 235 406. LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but has not had any involvement in the investment research process for Lonsec Research. Please read the following before making any investment decision about any financial product mentioned in this document.

Disclosure at the date of publication: Lonsec Research receives a fee from the relevant fund managers or product issuers for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer (s) for subscribing to research content and other Lonsec Research services. LIS receives fees for providing investment consulting advice, approved product lists, model portfolios to financial services professionals and other advice to clients. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS, Lonsec Research and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the analyst(s).

Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to “general advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of their financial circumstances or should seek independent financial advice on its appropriateness. If the advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

Disclaimer: LIS provides this document for the exclusive use of its clients. It is not intended for use by a retail client or a member of the public and should not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. Financial conclusions, ratings and advice are given on reasonable grounds held at the time of completion (refer to the date of this document) but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

This report is subject to copyright of LIS. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth), no part of this report may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of LIS.

This document may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to LIS copyrighted material, applies to such third-party content.

Copyright © 2023 Lonsec Investment Solutions Pty Ltd

The August 2023 reporting season highlighted the resilience of the domestic economy despite growing headwinds from higher inflation and rising interest rates. Overall aggregate EPS growth for the broader market for FY23 was flat, with double digit earnings declines in the Resources sector offset by strong growth from Industrials and Banks. Earnings growth forecasts for FY24 have edged lower over August and September, with market EPS expected to grow c.2% in the financial year.

Earnings downgrades for FY24 were mainly driven by the Resources sector, with sector earnings now expected to decline in FY24, driven by lower commodity price expectations and higher costs. BHP’s costs grew 10% over the year, and the company expects the lagged impact of inflation to continue into FY24, particularly in labour costs. This is a trend that is evident across the commodity complex, with the cost of mining production now expected to be higher than it was prior to the pandemic. This in turn implies that commodity price support is also expected to be higher than in previous cycles, with low-cost operators set to capture potentially higher relative margins in certain commodities.

Bank earnings have continued their strong rebound post the COVID-impacted trough in FY20, with higher interest rates and positive credit growth boosting Net Interest Margins to multi-year highs. FY24 does look more challenging for the sector, with higher costs, elevated levels of competition, and the lagged effect of the 12 RBA rate rises over the past 16 months all set to erode margins over 2024.

At the sector level, Consumer Discretionary was surprisingly the best performing sector over the month, gaining 5.7% in response to better-than-feared results and trading updates. Discretionary retailers have broadly managed costs well over FY23, but heading into FY24, margins are likely to remain under pressure as sales growth moderates.

At the stock level, within the ASX200 universe, Mineral Resources, James Hardie, Origin Energy, Cochlear and Altium reported stronger than expected performances, while Wisetech Global, Ramsay Healthcare, Seek, South32 and Amcor delivered relatively weak results and forward guidance.

In terms of themes, cost and capex inflation, weakening consumer spending and inventory management dominated discussions and outlook statements over the reporting period. To-date, the market as a whole seems to be navigating these headwinds relatively well, with many companies passing on the additional costs to end consumers, where possible, to protect their own margins. However, passing on higher costs is likely to get more challenging from here, as consumers remain under pressure from the rising cost of living.

Looking ahead, consensus estimates are suggesting 2% growth in earnings in FY24, but this is likely to remain volatile over the year, with macro factors expected to have a larger than usual impact on the earnings trajectory of the market in 2024. At the sector level, a sustained rebound in commodity prices, particularly iron ore, is likely to drive earnings upgrades within the Resources segment over the second half, while amongst the banks, a continuation of very benign loan arrears and impairments could be a catalyst for upgraded expectations for earnings and dividends in FY24.

IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2023 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

SuperRatings is pleased to announce the Super Fund of the Year Awards finalists.

This year’s event reflects our commitment to evolve with the industry as we have joined with Super Review and Momentum Media as the exclusive Research Partner to deliver an awards night dedicated to the superannuation industry.

Join us in celebrating those funds that have delivered outstanding outcomes for their members. Finalists across all award categories have shown great commitment to helping their members navigate a rapidly changing market and we are pleased to be able to help recognise their efforts across our most extensive range of awards yet. The judging criteria for the award categories are both quantitative and qualitative and have considered over 90% of the assets reporting to APRA as part of the process.

You can see the methodology for all awards here.

For a full list of the awards and finalists please visit the link below.

Congratulations to all finalists and we look forward to recognising those that continue to innovate, develop and deliver strategies that meet the changing needs of their members.


Winners will be announced at a black-tie gala event at Grand Hyatt, Melbourne on Wednesday, 25 October 2023.

 

 


SuperRatings Pty Limited ABN 95 100 192 283 AFSL No. 311880 (SuperRatings) are acting as a research partner for the Super Review Super Fund of the Year Awards (Awards) issued by Momentum Media Group Pty Ltd on 25 October 2023 .The Awards are determined using SuperRatings proprietary methodologies, are solely statements of opinion, subjective in nature and must not be used as the sole basis for investment decisions. The Awards do not represent recommendations to purchase, hold or sell any products or make any other investment decisions. Investors must seek independent financial advice before making any investment decision and must consider the appropriateness of the information, having regard to their objectives, financial situation, and needs. Past performance is not an indication of future performance. Awards are current for 12 months from the date awarded and are subject to change at any time. SuperRatings does not represent these Awards to be guarantees nor should they be viewed as an assessment of a Super Fund or the Super Funds’ underlying securities’ creditworthiness. SuperRatings receives a fee from the financial product issuer(s) for researching the financial product(s), using objective criteria. SuperRatings’ rating(s) outcome is not linked to the fee or the Award. SuperRatings and its associates do not receive any other compensation or material benefits from product issuers or third parties in connection with the Award. SuperRatings makes no representation, warranty or undertaking in relation to the accuracy or completeness of the Awards. SuperRatings assumes no obligation to update the Awards after publication. The Award is for the exclusive use of the client to whom it is presented and should not be used or relied upon by any other person unless with express permission from SuperRatings. Except for any liability which cannot be excluded, SuperRatings, its directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document and any Award or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. ©SuperRatings 2023. All rights reserved.

The much-anticipated slowdown in economic growth appears to be upon us, with GDP in Australia slowing to 2.3%. While only slightly below long-term trend GDP at this point, it is the direction and speed of travel that counts. Discretionary spending has eased (-1.0%), as cost of living pressures finally hit the consumer. Perhaps not surprisingly, the slowdown is being felt most in the more expensive housing markets of NSW and Victoria, where high house prices translate into high mortgage costs.

As reporting season wraps up, the picture is also becoming clearer for corporates. Earnings have come down, but not by as much as expected which has so far pleased equity markets. There have been good reasons why earnings have been so resilient to date; from very tight labour markets to consumers being flush with covid cash buffers and businesses, in many cases, able to pass on rising input costs. Looking forward, however, earnings growth looks harder to come by in 2024 as these tailwinds ease. The impact of rising rates, tighter credit conditions and higher costs are indeed feeding through the economy albeit with a long lag.

Our base case remains that Australia will avoid recession thanks to a significant rebound in migration this year and the continued demand for our resources as the global economy continues its decarbonisation path. Inflation continues to soften slowly with the latest headline number coming in at 4.9%. It’s still a long way away from the central bank’s target range of 2-3%. The RBA has kept rates on hold for a second month in a row but remains on alert as inflation has the potential to remain stickier here than in other parts of the developed world.

We remain cautious and positioned for the weaker economic conditions ahead. Our focus is on quality investments, liquid assets and active portfolio management which should put us in good stead to manage any volatility that may arise as the year progresses.

IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2023 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

Lonsec’s Listed Managed Portfolios generated strong returns over the June quarter, outperforming the peer group benchmark, with returns this year primarily driven by the portfolio’s growth allocations, particularly global equities.

Portfolio Manager for the Listed portfolios Dan Moradi provides a market and portfolio update, covering performance, positioning and outlook.


The information in this video is prepared by Lonsec Investment Solutions Pty Ltd ABN 95 608 837 583 (LIS, we, us, our), a Corporate Authorised Representative (CAR) No. 1236821 of Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No. 421445 (Lonsec Research). Any express or implied rating or advice presented in this video is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision you must consider your financial circumstances or seek personal financial advice on its appropriateness. Read the Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product.

Past performance is not a reliable indicator of future performance. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this video, which is drawn from information not verified by LIS. This video may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material.

The information contained in this video is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. This video is not intended for use by a retail client or a member of the public and should not be used or relied upon by any other person. This video is not to be distributed without the consent of LIS. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this video or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. Copyright © 2023 Lonsec Investment Solutions Pty Ltd.

You may not reproduce, transmit, disseminate, sell or publish this video without our written consent.

The Retirement portfolios’ 12-month performance remains first quartile, and above the peer group benchmark with the embedded risk control in the portfolio protecting retirees from the worst of the year’s volatility. The structural overweight to Australian equities (to capture the benefits of franking credits) detracted this month as domestic equities were unable to keep pace with their global equity counterparts.

Deanne Baker explains how the Retirement portfolios performed over the June quarter.


The information in this video is prepared by Lonsec Investment Solutions Pty Ltd ABN 95 608 837 583 (LIS, we, us, our), a Corporate Authorised Representative (CAR) No. 1236821 of Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No. 421445 (Lonsec Research). Any express or implied rating or advice presented in this video is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision you must consider your financial circumstances or seek personal financial advice on its appropriateness. Read the Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product.

Past performance is not a reliable indicator of future performance. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this video, which is drawn from information not verified by LIS. This video may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material.

The information contained in this video is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. This video is not intended for use by a retail client or a member of the public and should not be used or relied upon by any other person. This video is not to be distributed without the consent of LIS. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this video or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. Copyright © 2023 Lonsec Investment Solutions Pty Ltd.

You may not reproduce, transmit, disseminate, sell or publish this video without our written consent.

It has been a remarkable turnaround for sustainable portfolios over the last 6 months. Weaker first half financial year performance, has given way to a strong rebound as high quality, profitable, information technology stocks have outperformed the broader market by some margin. The launch of artificial intelligence technologies such as ChatGPT, has created enormous buzz and excitement around potential productivity gains and outsized future earnings of companies across the tech value chain.

Deanne Baker provides an update on the portfolios’ top contributions during the June quarter to the United Nations Sustainable Development Goals (UN SDGs).


The information in this video is prepared by Lonsec Investment Solutions Pty Ltd ABN 95 608 837 583 (LIS, we, us, our), a Corporate Authorised Representative (CAR) No. 1236821 of Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No. 421445 (Lonsec Research). Any express or implied rating or advice presented in this video is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision you must consider your financial circumstances or seek personal financial advice on its appropriateness. Read the Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product.

Past performance is not a reliable indicator of future performance. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this video, which is drawn from information not verified by LIS. This video may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material.

The information contained in this video is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. This video is not intended for use by a retail client or a member of the public and should not be used or relied upon by any other person. This video is not to be distributed without the consent of LIS. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this video or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. Copyright © 2023 Lonsec Investment Solutions Pty Ltd.

You may not reproduce, transmit, disseminate, sell or publish this video without our written consent.

Over the 12 months to June 30, the portfolios delivered solid absolute returns. This very respectable result masked significant intra-year volatility. The 2023 financial year was characterised by raging inflation, the most aggressive rate rises in history, the re-pricing of all major asset classes, significant shifts in style from growth to value (and back again), and a strong shift in investor sentiment on the back of the buzz generated by artificial intelligence.

Deanne Baker explains how the Multi-Asset portfolios performed over the June quarter.


The information in this video is prepared by Lonsec Investment Solutions Pty Ltd ABN 95 608 837 583 (LIS, we, us, our), a Corporate Authorised Representative (CAR) No. 1236821 of Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No. 421445 (Lonsec Research). Any express or implied rating or advice presented in this video is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision you must consider your financial circumstances or seek personal financial advice on its appropriateness. Read the Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product.

Past performance is not a reliable indicator of future performance. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this video, which is drawn from information not verified by LIS. This video may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material.

The information contained in this video is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. This video is not intended for use by a retail client or a member of the public and should not be used or relied upon by any other person. This video is not to be distributed without the consent of LIS. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this video or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. Copyright © 2023 Lonsec Investment Solutions Pty Ltd.

You may not reproduce, transmit, disseminate, sell or publish this video without our written consent.

We recently held our annual updates for Super Funds where we discussed the super landscape over the past year and the focus for SuperRatings this financial year. Watch a summary from Kirby Rappell, Executive Director of SuperRatings.


Disclaimer: Presentation issued by SuperRatings Pty Limited ABN 95 100 192 283 AFSL No. 311880 (SuperRatings). The information used in compiling this data comes from sources considered reliable and is not guaranteed to be accurate or complete. Past performance is not a reliable indicator of future performance. Any expressed or implied rating or advice presented in this document is limited to General Advice and based solely on consideration of the merits of the superannuation financial product(s), without considering any person’s particular financial circumstances. The reader should read the Product Disclosure Statement and seek personal advice before making a decision on the financial product.

SuperRatings’ research process relies upon the participation of the superannuation fund or product issuer(s). Should the superannuation fund or product issuer(s) no longer be an active participant in SuperRatings’ research process, SuperRatings reserves the right to withdraw the rating and document at any time and discontinue future coverage of the superannuation and pension financial product(s).

Copyright Disclaimer: © SuperRatings Pty Ltd. All rights reserved. This presentation may also contain third-party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material. Any unauthorised reproduction of this information is prohibited.

 

Bond markets across a number of developed countries including the US, UK and Germany are currently pricing in a recession. Global stock indices are close to, if not at, all-time highs. What exactly are the capital markets trying to tell us about the state of the economy?

Stock prices are a well-known leading indicator of the business cycle and future economic growth.  They are among a handful of leading economic indicators (LEI) that analysts typically follow when trying to take an overall reading on economic activity. Stock prices have been on a winning streak this year, with Global equities as measured by the MSCI World TR Index AUD up 16% over the 6 months to 31 July 2023. The rally has been led by the US where the launch of artificial intelligence technologies such as ChatGPT, has created enormous buzz and excitement around potential productivity gains and outsized future earnings of companies across the tech value chain.

Bond markets, on the other hand, are taking a much dourer view. Taking the 10-year to two-year Treasury spread, yield curves in the US, UK and Germany are currently inverted.  In Australia, the yield curve, while not yet inverted, is flat by historical standards.  Inverted yield curves are typically good indicators that recession looms.  Inverted yield curves reflect the expectation from bond investors that longer-term interests will fall; a situation typically associated with recessions.

So are bond or equity investors right?  Inverted yield curves, while pretty reliable indicators, can and do give false signals from time to time. Equity markets too, can be prone to over-optimism, often overshooting fundamentals based on sentiment. Weighing the conflicting signals, our view is that we are headed for a period of weaker growth. The equity market rally to date has been narrow and centred around US mega tech stocks.  Should we see greater breadth and participation in this rally, we may have cause to reconsider.  Putting stock prices aside, most other leading indicators are pointing to a further slowdown in the business cycle. Consumer sentiment is extremely low, housing starts are weak, money supply is tightening and Purchasing Manager Indices remain in contractionary territory. To us, these data points lead us to believe that the second half of 2023 continues to present some headwinds for the economy and risk assets in general.

IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2023 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

Important information: Any express or implied rating or advice is limited to general advice, it doesn’t consider any personal needs, goals or objectives.  Before making any decision about financial products, consider whether it is personally appropriate for you in light of your personal circumstances. Obtain and consider the Product Disclosure Statement for each financial product and seek professional personal advice before making any decisions regarding a financial product.