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 the day has dawned on the new financial year. It's the first of July as I sit here in the studio and I am pleased and somehow always reassured to be catching up with UniSuper economist and investment manager, David Colosimo, from our Investment team. David, Happy new financial year.
David: Happy new financial year to you, Lyndon.
Lyndon: Now being the first day of the new financial year, David, I thought, what better time to do a bit of a recap of the last 12 months. Shall we dive in?
David: Yeah, sure. Why not?
Lyndon: OK, great. It felt like in our chats during the year that there was a lot of uncertainty at various times, but that didn't necessarily stop strong returns in shares, did it?
David: No, certainly not, Lyndon. It was actually a really good year for shares in the end. US shares in particular were the star performer. If you include dividends, they were up nearly 25% over the last 12 months. Share markets in India, Japan, they were also strong. But Australian shares, they were up about 12% when you include dividends—so not quite as good, but actually still a reasonably solid year. Of the major markets, it really was only China that fell behind. Shares there were down nearly 10% in the last 12 months.
Lyndon: I know I've asked you this before, David, and I'm wondering if your answer will still be the same—how is it that the US share market has been so much stronger than Australia?
David: Well, as you alluded to, Lyndon, we have spoken about it on previous podcasts. It's still really those big global mega cap tech names like Nvidia, Meta and Google that drove most of the increase. If you contrast that to Australia, our biggest sector is resources and they were down 6% for the year—so that weighs on the total market, even though the other big Australian sector, which is the banks, was actually really strong.
Lyndon: Alright. That was for the year—what about the month of June, David?
David: June was actually just a repeat of the year, but on a smaller scale—that's to say a standout performance by US shares driven by mega cap tech, and a softer Australian market because of weakness in the resources sector. US shares were up 3.5% in June, so quite a solid gain, but those gains were really concentrated in the big tech names. All of the Magnificent Seven names are up at least 5% in the month. Once again, AI chip maker Nvidia was the pick of the bunch. For a single day in June, it was the biggest company in the world. It’s crazy to think it fell 13% from its highs during the month, but still finished up over 12% in June.
Apple held its Worldwide Developers Conference. It unveiled the integration of AI into its ecosystem and a partnership with OpenAI—that was really well received. Apple was up nearly 10% in June.
Lyndon: Just on the mega cap tech stocks, David—you were mentioning their impact on the US share market there. How much impact do those names have on the total market?
David: It's a really big impact because share indexes are weighted by the market value of the companies, and the biggest companies are getting bigger. Take the three biggest companies, Microsoft, Nvidia and Apple. All three are now over USD$3 trillion each, which means that any one of them on their own would actually be the size of the fifth-biggest share market in the world—bigger than the entire market of the likes of France and Germany. When you put them together, they're nearly USD$10 trillion, which is 20% of the US market. When the big companies do well, it really does override what the smaller companies are doing, and that was really noticeable this month. I’d highlight there's an index in the US—it's still the 500 biggest companies, but it's calculated on equal weight, not market weight—it's rather appropriately called the ‘equal weight index’. That index actually finished down by nearly 1% in June, so if you look across the market, the average share actually fell in the month.
A couple of consumer-facing names in particular had a difficult month. Walgreens, which is a pharmacy chain, and Nike—they both cut earnings and revenue guidance, and they were down more than 25% and 20%, respectively, in the month.
Lyndon: OK, so some signs of weakness in the US consumer there perhaps, David. Getting back to Australia then, you said resources companies were weaker. What's going on there?
David: Resources shares were down 6% in June, and that's basically because commodity prices were also broadly weaker in the month. If you look at the big names, BHP, Rio Tinto, they were down 4% and 7% respectively. That's on the back of weaker iron ore prices. But the biggest weakness was in the lithium sector, so excess supply there is driving prices lower. Liontown’s a great example here—that was down 30% in June.
We did actually see some strength elsewhere. The banks and consumer names, healthcare, they all posted quite solid gains—so you're talking about Commonwealth Bank up 6%, Woolworths nearly 7%, JB Hi-Fi and CSL up about 5% each. Overall, the Australian market was up by around 1% in June.
Lyndon: Moving on to something we don't really talk much about on this podcast, David, being politics—it does seem like politics have driven some economic shifts around the world. Are there any insights you can offer from your balanced political tightrope over there?
David: Politics is a topic that I often find best to avoid. But as you said, it did have an impact on global markets this month, so there were some surprise results and that drove some pretty big swings. A good example here is Indian shares lost 6% in a single day after the election there before bouncing back. French shares were also down 6% in June after President Macron called a snap election following a poor showing in the European parliamentary elections.
We also have the UK election shortly, and we do draw ever closer to the US election in November. That's still quite some months away, but it does look like it's starting to create a little bit of uncertainty in the economy, and that's having an impact on the economic data. In the US, there's a lot of surveys on confidence where they ask households and businesses how they're going and what they're expecting. All of those confidence measures are starting to point to a bit more negative, but there is a big difference between what people say and what people do. And when it comes to the harder data, such as the jobs data, the economy actually still looks OK.
Lyndon: Alright, David, let's look ahead now to June. We had central banks in Europe and Canada join the rate-cutting bandwagon during the month. What can we expect to see from the US Federal Reserve?
David: The recent inflation data in the US has actually been pretty good. It's been softer again, but the Federal Reserve remains worried about the strength of inflation and it does seem to be pushing back the prospect of any rate cuts further into the future. They next meet again on 31 July. That's still quite a few weeks away, but at this point, I think a rate cut’s actually very unlikely there.
Lyndon: And what about our own RBA here in Australia, David?
David: They don't meet again until 5 August. Not only is a rate cut very unlikely, but there's actually a high probability the RBA will hike rates at that meeting.
Lyndon: If other Reserve Banks are cutting or getting ready to cut, are you able to explain what makes Australia different? Is it mainly due to inflation, or...?
David: I think certainly the best place to start is inflation. In places like Europe and Canada, inflation's already started to slow down quite a bit, and there has often been enough weakness in those economies to be confident that will continue. Even in the US where the economy's been very resilient, inflation is back below 3% already and we just haven't seen that in Australia. The most recent data suggests inflation in Australia is trending at about 4%, and it's been pretty stubborn at that level. The other thing is, is that the RBA have been a bit more cautious on rate hikes up to now. Remember the rates are about 1% lower here than they are in the US.
Lyndon: What are the things they're going to be looking for over the next few weeks then, David?
David: The most important is that they get another inflation report on the 31 July—that's going to be the key to whether they hike again or continue to hold steady. Also remember that Australian taxpayers all got a tax cut as of today, and there are some more energy subsidies coming through over the coming months so we need to wait to see the impact of that as well.
The RBA governor, Michele Bullock, she has started to acknowledge that the economy may have to weaken a little bit more to get inflation under control.
Lyndon: It sounds like we have a lot to talk about next month then. OK. Turning now to US reporting season, David—that starts again this month, doesn't it?
David: Yeah. The earliest report will be the big banks. They start on 12 July. For most of the big tech names, we're looking at late July and early August there.
Lyndon: Before we finish up, anything else, David? I know we haven't asked you about China and that's normally on our agenda. Anything there?
David: Yeah, one last thing to watch—it's the Chinese third plenum meeting. It's going to be held over a few days in mid-July. This is a policy meeting—it's only held once every five years, and they use it to create the agenda for economic and social reforms for the next five years so it can be quite pivotal. The market’s still really focused on what can be done to stem the impact of the severe housing downturn that's going on there now.
Lyndon: Amazing. Well, I think that wraps us up, David. I am certainly looking forward to checking in with you again next month. But for now, thanks for catching up with us and we'll see you next month.
David: Thanks, Lyndon. Looking forward to it.
Lyndon: And thank you for listening. Don't miss out on future episodes of this podcast. Subscribe to us wherever you get your podcasts or check unisuper.com.au/podcasts at the start of each month. A reminder, our Chief Investment Officer, John Pearce, he's going to be releasing his next investment update video later this month—he'll be providing a full retrospective on last financial year, so do keep an eye out for that on our website.
We are UniSuper, the place where bright minds and passionate people strive to think great and create a future worth retiring for. If you'd like more information about our investments, visit unisuper.com.au. Thank you again for listening. We will see you next time, and until then—look forward, think great, with UniSuper.
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.