Introduction

Quarterly Market Update30 June 2022

Our Investment Committee provides an update on investment markets over the last quarter and 12 months, which was dominated by 3 key things - inflation, inflation and inflation.

Quarterly Market Update 30 June 2022

Inflation vs The Market

Once again, the major theme of the quarter was all about inflation.

The upsurge in inflation is due to a combination of factors, starting with the disruption to global supply chains caused by the pandemic, central banks and governments pumping up demand through monetary and fiscal stimulus; Russia’s invasion of Ukraine, and China’s continuing pursuit of a zero-Covid policy.

Russia’s invasion of Ukraine and China’s lockdowns have dramatically compounded supply constraints, driving up prices – especially on non-discretionary items like energy and food.

Higher than expected inflation has meant that interest rates are rising faster and higher than originally forecast. Central banks around the world – including the RBA - are now in a situation where they are trying to engineer a slow-down in demand to contain inflation, while trying to maintain economic growth and not push their economies into recession.

Market Overview

  • Due to rising yields bonds had negative returns for the quarter & year.
  • The Australian equity market (S&P/ASX 200 Index) returned a modest 2.2% for the quarter but returned just over 15% for the year.
  • International markets have been hit harder by the fall in tech stocks and the conflict in the Ukraine.
  • Over a 10-year period the global markets have returned approximately 6% p.a. higher than Australian shares.
  • Emerging Markets were down -2.5% for the quarter due to China but positive 2.9% for the year.
  • Australian and Global REIT’s have had a strong quarter and strong year, rebounding from lows post the March 2020 quarter.

Enhanced Asset Class – Factor Returns

We pursue higher expected investment returns for our clients, through low-cost, highly diversified portfolios which tilt toward known factors of return.  These ‘factors’ of return, when combined in a portfolio, can lead to higher expected returns.

Domestic Factors

  • Value stocks outperformed the overall market by 1.9% for the quarter and 5.2% for the year, as lower P/E companies on average did better than higher P/E companies (typically in IT).
  • Smaller companies underperformed the overall market, which is not uncommon in volatile periods.

Global Factors

  • The story is the same in developed markets, where the rout in high P/E tech stocks has resulted in an extraordinary value premium of 10.8% for the quarter and 17.4% for the year.
  • Smaller Cap companies underperformed the overall market, but not as severely as in Australia.

If you have any questions about your investment portfolio or any other financial and wealth management matter, please contact us on +61399350970 or email admin@warrhunt.com.au if we can be of assistance.