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 we've just ticked over into June of 2024, and I'm here in the studio with economist and investment manager David Colosimo from our Investments team. David's going to take us through what's been happening in investment markets recently, and what's on the horizon for this month as we head towards the end of the financial year. David, welcome.
David: Thanks Lyndon, great to be here.
Lyndon: David, let's start off with Australian shares. They saw modest gains in May, didn't they?
David: That's right Lyndon. We actually did see some really good gains in the first half of the month, but that petered away towards the end. In the end, the Australian market was quite close to flat—it was up about half a percent. If you look around the world, we actually saw that same pattern in many countries—positive at the start, petering way to the end and a small positive gain overall. But the US was definitely an exception here. Like other markets, they started off with a really solid first few weeks, but while the other markets retraced most of that, US shares actually held on to most of their gains, and they finished up 4.5%, so a really solid month in US shares.
Lyndon: Alright David, let's unpack that just a fraction. What was behind that resilience?
David: I think a couple of things. The first thing is that the data over the month was initially quite positive. They had slightly better inflation data, and that reassured the market that rate cuts would be delivered eventually. But I think the main thing was just that the quarterly earnings season continued to come in strong. Total earnings finished up 6% compared to last year, so that's pretty good absolute growth. It is still driven a lot by those big tech companies, but they are very concentrated in the US so it was a little bit more positive overall.
Lyndon: And what about outside the tech sector, David?
David: More companies reported higher earnings than what analysts had been expecting. That pattern of upgrades is what actually usually happens, but the forecasts for next quarter were also upgraded and that's less common—so still a good earnings outlook in the US.
Lyndon: And speaking of results there, David, were there any that were of particular interest to you?
David: I think continuing the trend of the last couple of quarters, the one that generated the most interest was Nvidia. So again, they produce the chips that power the servers needed for artificial intelligence. They delivered another big positive surprise. Revenue is more than three times higher than last year, earnings are up more than five times in just one year. Despite how strong it's been, the stock was up another 27% this month. That's more than doubled just since the start of this year alone.
Elsewhere in tech, the big tech names—Apple also had a good month, it was up 13%. So given those sorts of gains, it's little wonder that the IT sector was the strongest, up 10% in the month. But we are now starting to see a real divergence within in the sector—so the mega cap and the AI names, they're still very strong, but a lot of software companies took a big hit this month. Earnings and revenue for Salesforce—they sell customer resource management software—they disappointed the market and their shares fell 13%.
Another company, Intuit, which sells financial management software, they were down 8%. I think what we're seeing when you say those sorts of moves is not just the disappointment, but it means that the market is really starting to question the growth that's assumed in those sectors.
Lyndon: Alright. Coming back to Australia then, for David, what did we see locally?
David: We didn't really have a big reporting season, we only had three of Australia's four major banks reporting this month. Their results were broadly in line with expectations and the share prices of all three banks were close to unchanged. What we're seeing is that the credit losses that they're reporting are still quite minimal, but they are starting to see some deterioration in some of the forward-leading indicators, things like arrears, and that's largely because rate hikes and cost of living pressures are just really starting to bite into household budgets.
That is also a theme that we're seeing across much of the retail sector. We had the likes of JB Hi-Fi and Super Retail Group—they both released trading updates, and both are talking about softer conditions and the need for more promotions. JB Hi-Fi was down nearly 5%, Super Retail down 11% in May. I would note that we did actually see the Federal Government release their budget this month. There were some electricity rebates, some rental assistance measures, there's also some tax cuts coming through. It's going to be interesting to see whether this helps support household income and spending for those low-income households.
And finally, we did mention this last month, but BHP have been making bids for Anglo American. They actually ended up making three bids, each one higher than the last. But the Anglo American Board couldn't actually get comfort with that acquisition and they rejected that final proposal. BHP’s actually had to walk away, at least for now. Its shares were up more than 3% in the month.
Lyndon: Okay, turning to China now, David—it feels like there's been a little bit happening there. Are you able to give us the lowdown?
David: It's definitely been busy. We've spoken a few times in the last couple of months about how China's been plagued by an oversupply of housing. Property prices have been falling, property developers have been going out of business, and just overall, there's a downturn in residential construction activity. All of that has really been weighing on growth there.
In May, policymakers really stepped it up and they announced a 300 billion renminbi package—that's about $60 billion AUD. That's being made available from the central bank for local governments—they're going to add some of their own money—and they're going to use it to buy properties for social housing. I've actually just been traveling through Asia, and while I was there, the general consensus seemed to be that while it's not that big relative to the size of the problem, it is a step in the right direction and really does show that authorities understand how large a problem it is.
Normally this might have been quite positive for the share market, but it was offset by worse news on the geopolitical front. Firstly, we had the Biden administration announce a range of tariffs on Chinese goods. There was a 100% tariff on Chinese electric vehicles and a 25% tariff on lithium-ion batteries—they're the types of batteries that are used in electric vehicles. This impacts only a fraction of Chinese exports, but Donald Trump has also been threatening 60% tariffs on all Chinese goods across the board so that would really create some uncertainty there. Those Chinese military exercises around Taiwan also didn't help much either. Overall, Chinese shares were a bit weaker in the month.
Lyndon: Okay, David, let's now turn to what's coming up this month with the US Federal Reserve and our own RBA.
David: The US Federal Reserve and the RBA are both meeting this month. The Fed will announce their meeting on June 12. The economy's still holding up really well there. Inflation is not slowing as quickly as they'd like, so it's all but certain they’ll keep rates steady. For us in Australia, the RBA meets on 18 June—again, very little chance of a move. After the May meeting, RBA Governor Michelle Bullock, she actually revealed they did consider the case for one more rate hike given how sticky inflation has been. But it does seem like it's going to take quite a bit more bad news on inflation to go down that path and we're certainly not at that point yet, given how weak household spending seems to be.
While we're talking about inflation, I would also note that we've got the Fair Work Commission publishing its decision on the annual wage review today. Expectations are for a 3.5% to 4% increase in the minimum wage this year. That's just really catching up for the inflation that we've already seen and any increase that’s significantly above that might actually concern the RBA.
Lyndon: So rate cuts some way off in the US and Australia—got it. Before we wrap up David, is there anything of note from other central banks?
David: There's actually quite a bit happening elsewhere. When you look around the world, inflation and wages are still quite high, labour markets are still tight in many parts of the world. But given that growth’s actually been a bit softer in the US, a lot of central banks are feeling that maybe the inflation surge and the risk from it has passed, and now it's actually safer to start easing. We've already seen central banks in Switzerland and Sweden—they've already cut rates in the last couple of months. This month, I think the European Central Bank and the Bank of Canada will follow suit, so they'll start cutting rates this month. The Bank of England are also meeting, but they actually look a lot less certain. They'll probably hold for one more month here.
Lyndon: Amazing. Alright, well, let's see how the month unfolds, David, and you can update us on things in a few weeks’ time.
David: Thanks, Lyndon. Looking forward to that.
Lyndon: And that's it for this episode. Thank you for listening. Don't miss out on future episodes of this podcast. Remember, you can subscribe to us wherever you get your podcasts or check unisuper.com.au/podcasts at the start of each month.
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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.