Greetings and happy new financial year
We appear to be halfway through winter, but it seems colder than usual!
Let’s start the year by reviewing the main themes and results of 23/24.
Both Australian and US equities reached an all-time high this week driven by the effect of Artificial Intelligence in driving business efficiency and hence profitability reflected in share prices.
There is quite a disconnect in the Australian economy with assets in aggregate reaching $16 Trillion Dollars ($11T being residential property) while many in our community are struggling to meet ends meet. In essence many of our community are asset rich but income poor.
Top 10 Countries by Median Wealth per Adult (US$) Previous year in brackets (Source: UBS Global Wealth Report, AFR)
The key determinate now is if and when interest rates will fall in Australia as they are beginning to do in Canada, the Euro region and the UK. The US has a high probability of dropping rates this September which again has been a tailwind for their share market.
The Australian experience has been unique.
- Retirees selling down 5% of their super
- High international student population
- High international visitors buying goods cheaper here due to lower GST
- Lack of supply of housing
- High interest rates driving up the cost of borrowing which is in itself inflationary
- The calculation of the basket of goods only allocating 20% to housing/renting
So, we have at least a two-speed economy split by age and home ownership.
In aggregate the nation’s wealth increased in 23/24 by $2 Trillion Dollars (nearly the size of our stock market) which provides opportunity for people to either downsize and crystalise assets or use as collateral to leverage up again and /or help their children (all of which can push up inflation).
The next RBA meeting in August will on balance probably hold rates as they are unless there is further adverse data later this month.
Tourism is growing strongly particularly in Sydney which is encouraging foreigners to spend on their travels also benefiting from a lower GST than in many of their home countries.
International students are a substantial contributor to our local economy and continue to require housing and entry level employment all of which increase demand.
So, in aggregate we have too much demand and not enough supply which is keeping inflation higher than expected coupled with our older population spending some of their superannuation pension payments.
- Benefit payments totaled $112.9 billion for the year ending March 2024
- An 18.1% increase compared to the year ending March 2023. (Source: ASFA)
Global Elections
There have been elections in the last few days in both the UK and France and a very public upcoming US Presidential election in November. While the local issues were very different, the level of disengagement and low voter turnout stood out for me and there is a message to all politicians to get back to their roots and reflect the wishes of their local electorates.
At this stage there was little movement in equity markets which are still driven by perceptions of future interest rate policies and expected business efficiencies from the practical application of Artificial Intelligence.
Australian Equities
The year ended in reasonable shape with dividends improving driven by the four major banks all of whom now are approaching all-time highs, led by CBA at $131 driven by greater expected efficiency. We will move into the annual results season in the next few weeks and with our continuous disclosure regime are not expecting too many shocks. The number of companies listed on the ASX is shrinking which is a similar feature of global markets leading to fewer choices in investments.
A noted recent IPO was Guzman y Gomez which listed a small amount of equity at quite a premium. Whether this sustainable remains very debatable between analysts and probably better to own the leases to the restaurants than the operating fast-food business (think Domino’s or Harvey Norman).
ASX up 7.8% over last 12 months (Source: Commsec)
International Equities
The standout performer for 23/24 but dominated by a few artificial intelligences of which Nvidia followed by Microsoft (Open AI) led the way. The efficiency gains from AIshould now lead to a more balanced improvement in the equity markets as most companies should become more efficient and hence improve profitability.
This has become quite apparent in the Banking and Financial Services Sector which is doing quite a lot better both here and overseas. As an example, CBA hit $130 which is a new record. Effectively there is a transfer of wealth to the owners of these Tech organisations funded by the elimination of many entry level jobs that can simply be automated.
The Magnificent 7versus the wider Index (Source: Trading View)
Tax Rates
Most of you will have lower personal tax rates this new financial year and with deeming income remaining unchanged for Centrelink pension purposes the option to use these additional funds to in part off set the increase in the cost of living that we are all experiencing.
Tax rate changes (Source: ATO)
Property
Again, despite high interest rates residential property prices hit new highs with Brisbane and Perth doing particularly well (DATA).
Quarterly Change in Dwellings – 3 months to June (Source: CoreLogic)
Conclusion
Busy time ahead with a possible Australian Federal election in the next few months. Let’s use our tax savings wisely and continue to invest in a disciplined way which provides greater options in the future for both ourselves and our wider families.
With our best wishes
Tony and Fiona
