Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper PDS and TMD.
Lyndon: Hello, this is Super Informed Radio, the official UniSuper podcast. My name is Lyndon and believe it or not, we are now in May of 2024, and being the first business day of the month, I am back in the studio with David Colosimo from our Investments team. David's going to take us through what's been happening in investment markets lately and what is on his radar for May. David, welcome.
David: Thank you, Lyndon. Good to be back.
Lyndon: David, I didn't mention this before we sat down, but do you realise that this is actually our two-year anniversary of doing these investment market podcasts?
David: Yeah, wow, two years. They really grow up quickly, don't they?
Lyndon: Time flies when you're having fun. I feel like we should have exchanged gifts or something, David!
David: Sorry, Lyndon. I didn't bring anything with me.
Lyndon: That is all good. In lieu of that, perhaps, how about we gift our listeners with a commitment to continue providing your insights and analysis for another two years? How does that sound?
David: It sounds great.
Lyndon: Excellent. Alright, well, let's get down to business, because after a run of quite a few months of strong share prices, it looks like there was some payback in April, David—is that right?
David: That's right, Lyndon. US shares were down about 4% in April, but at one point they were down more than 5% during the month, and Australian shares also fell by 3%. When you look at the industry categories across both markets, the falls were pretty broad-based. It was only one or two of the 11 industry categories in each market that saw gains.
Lyndon: And what was behind those falls, David?
David: As you said before, Lyndon, up until March, shares had a pretty good run. In just five months, US shares had gained more than 27% and Australian shares more than 16%. Now, in that situation, I think that share prices were starting to look a bit extended. They were pricing in a bit too much optimism. When that happens, it doesn't take too much of a catalyst to see a pullback.
Lyndon: And so what were some of those catalysts in April then, David?
David: Early in the month, we did see those escalating tensions in the Middle East, and then later we saw some more bad inflation data. It was only a few months ago that it looked like inflation was receding very rapidly around the world, that central banks would be able to cut rates without sending their economies into recession. But for the last couple of months, the inflation data has been stronger. Expectations for these impending rate cuts that people have been expecting, they keep getting pushed further and further into the future and bond yields have been moving higher—so not a great environment for shares. Particularly, there's a bit of a feeling that maybe inflation won't get back under control without some weaker economic growth.
Lyndon: So we’re around about halfway through US company reporting season, David, and I feel like there's kind of been a bit of bad news around. Has that played a part, do you think?
David: Not as much at the aggregate level. On average, reporting season has actually been a bit more positive than expected, so I don't see it as a source of weakness for the whole market. But if you look at individual results, then you definitely do see an impact.
Lyndon: And speaking of those individual results, are there any that stick out for you, David, as worth maybe delving into a bit?
David: As always, the US banks were some of the first to report. If you look at that group, they seem to have beaten expectations because loan losses still remain very benign, but they're interest margins—so that's the difference in the interest rates between their deposits and their loans—hey were actually a bit lower. The biggest bank in the US is JP Morgan. It was down more than 4% in the month and that's despite the fact it actually beat earnings expectations. When that happens, it's probably another indicator that the market had run a bit too far.
Lyndon: And what about the big so-called Magnificent Seven tech names, David? What have they been up to?
David: So far, four of them have reported. Overall, earnings growth in absolute terms—it’s still very strong there. But share prices don't always move as you might expect, and I think a great example here is Meta—so that's the company that used to be known as Facebook. It had a really good result. It beat expectations by nearly 10%, which is great, but it also announced a big increase in capital investment and the market didn't like that as much, so it’s actually down more than 11% in the month.
Now, Tesla—they reported on the same day as Meta. Keep in mind Tesla's share price is down more than half from the peak that we saw in 2021. They had already let the market know that vehicle sales are now falling, but even so, they still missed on their revenue expectations. Even so, the share price is up more than 4% in the month because they announced they were bringing forward a new vehicle program and they also announced a partnership in China with a Chinese tech company, Baidu.
And finally, I think another good one to mention is Google's parent Alphabet, which was up nearly 8% in the month after they actually posted very strong earnings and announced for the first time they're going to pay a cash dividend.
Lyndon: OK. And coming back to the Australian market for a sec there, David, what's been going on here?
David: April was actually a quiet period for news flow in the Australian market. We're still a few months away from our own reporting season here, but we did see some quarterly updates for the mining companies. Some gold operations in Western Australia and some coal mines in Queensland, they were impacted by rain, but overall, resources were one of the better performers in April and they've really been helped by higher gold and copper prices in the month.
The biggest news, however, is that BHP, which is Australia's biggest company—they've launched a takeover bid for a London based miner called Anglo American. There's still a lot to play out there and the market's implying it's going to have to take a higher bid to win control of that company. Takeovers don't always work out well for the buyer, and I'd note that BHP shares were actually down 3%.
Lyndon: Now we don't often talk about currencies, David, but you did mention, as we were setting up earlier, that the Yen has hit a 34-year low or something. What's going on there?
David: I think with some interest rates finally on the increase, there was just this expectation that that would be positive for the Yen, but it actually just keeps sinking lower. A weak currency is not all bad—it's certainly boosting tourism, it helps to boost corporate profits and it helps to maintain inflation when Japan has struggled to maintain inflation.
But I think that what we're seeing is concerns about the sustainability of the Japanese government debt as interest rates move higher. Government debt in Japan's actually more than double their GDP, so a very high debt burden there. There have actually been some unusual price moves in the last few days, and it does look pretty clear that the Bank of Japan has now started to step in and they're buying the Yen to push it stronger.
Lyndon: So maybe not a bad time to book a holiday or maybe even my skiing trip to Japan then, David! Is that what I'm hearing?
David: Well, I think any holiday is a good holiday, Lyndon. So, yes!
Lyndon: Alright. Looking ahead to May now, David—what are you looking at for this month?
David: The big event here in Australia is going to be the Federal Budget, so that's on 14 May. It looks like the budget's tracking a little bit better than previously expected, and so you might see whether the government actually uses some of that windfall to ease cost of living pressures on Australian households. But keep in mind there's already some pretty big tax cuts coming in July, and they do need to consider whether additional spending will add to inflation pressure.
Lyndon: And what about central banks, David? They've got meetings this month, don't they?
David: Yeah. The US Federal Reserve announces the outcome of its meeting on 1 May. That may have already happened by the time some listeners catch this podcast. We don't expect a change in interest rates this month, but the Fed has been reducing the size of its balance sheet. That's a process known as quantitative tightening and it's quite possible that they'll announce that they're going to slow down that process this month.
The RBA also meet on 6 and 7 May. Last month, the RBA moved to what's known as a ‘neutral bias’—so that means they're no longer thinking of either a hike or a cut, but they just happy to keep rates where they are. But we did have a very strong inflation report as well here in Australia, and interest rate markets are actually beginning to reflect a strong chance of further hike. I still think that's pretty unlikely, but it does look like any chance of a rate cut here is still a long way off.
Lyndon: And just going back to reporting season for a sec there, David, we've got the last half of US reporting season to go, but I did forget to ask you about Australian companies. Is there anything that you think's worth mentioning for them?
David: We do have three of Australia's four major banks reporting their half-year results over the next week, but for most Australian companies we won't see another reporting season until August. While that's three months away, they would be starting to get a pretty good picture about how things are shaping up. There is an important conference this month and many Australian companies present there, and they sometimes do take the opportunity to get a trading update or new guidance on how the year is going, so we need to be on the lookout for that.
Lyndon: Well, I look forward to hearing about how that goes when we catch up with you next month, David. So once again, thank you so much for being here, and thank you for always being here to share your insights and expertise with our listeners. It's always a privilege.
David: Thank you, Lyndon. I'll see you next month.
Lyndon: And that does indeed wrap up this episode. And thank you to you, actually, for tuning in and listening to these podcasts over the last couple of years. It is wonderful to be able to share the insights of our incredible Investments team with you. We do aim to please and we hope you find each episode interesting and informative. Speaking of our investments team, our Chief investment officer, John Pearce, released his latest investment update video recently, so head to our website and check that out—and actually, we will put a link in our show notes to that as well.
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This podcast is general in nature, and it doesn't take into account your financial situation, needs or objectives. So, before you make any decisions about your super, we recommend that you seek financial advice first. Also, make sure you've had a read of the Product Disclosure Statement and the Target Market Determination that's relevant to you. They are all available on our website. It goes without saying that the past performance of any investment options that we talk about isn't indicative of their future performance, and it's worth noting as well that just by talking about certain companies, we aren't endorsing them for you to include in your own portfolio.