Economic Review
Global Equity Markets
Global shares slipped in May but performance was mixed across countries and sectors. Signs of softer economic activity, persistent inflation pressures and concerns over central bank intentions on interest rates weighed on share prices.
Wall Street’s benchmark S&P 500 index made a marginal gain in May while the technology dominated NASDAQ index made very strong gains. Optimism about the promise of artificial intelligence (AI) boosting productivity and profit margins for technology companies was the key positive. This outweighed concerns over the US Government’s Debt Ceiling negotiations as well as US regional banking stress and tighter credit prospects. Encouraging signs that US consumer annual inflation has edged lower – from 5% in March to 4.9% in April – also partly alleviated investor concerns. US economic activity indicators were mixed with strong job gains countered by subdued retail spending and housing construction. US bond yields rose in response to concerns that the US government debt limit still faces Congressional approval as well as the prospect of another interest rate increase by the US central bank in June following May’s 0.25 % increase.
European share markets fell sharply in May given economic concerns as well as continuing worries over the Russia – Ukraine conflict. Consumer inflation in the Euro-area rose from 6.9% in March to 7.0% in April given persistent rises in food prices. The European Central Bank (ECB) responded with another 0.25% interest rate rise to 3.75%. Germany slipped into recession in the March quarter given weak consumer spending.
Asian share markets delivered a mixed performance. Worries over China’s growth prospects dominated. While China’s industrial production annual gain of 5.9% and annual retail spending at 18.4% were notionally healthy, there was continued weakness in property construction and the PMI business surveys are subdued. In contrast, Japanese shares provided a positive surprise given strong corporate profit prospects with a weak currency and supportive low interest rate settings.
Table 1: Global share market performance – May 2023
US S&P 500 +0.4%
US Dow Jones -3.2%
Euro Stoxx 50 -3.2%
German DAX -1.6%
UK FTSE 100 -4.9%
Japan Nikkei 225 +7.0%
China Shanghai Composite -3.6%
Source: Factset, financial data and analytics, May 2023
Australian share market review
Australian shares fell in May as lower commodity prices, higher interest rates and weak consumer spending cautioned investors. The sharpest falls were in the consumer discretionary and staples sectors and given signs of a retail recession for consumer spending. The combination of higher mortgage interest rates, rising rents and stubborn inflation pressures is squeezing purchasing power. There was also notable weakness in there source sector given lower coal and iron ore prices on China concerns. Financials also disappointed given the prospect of lower profit margins with higher deposit interest rates and more sedate credit demand. Echoing the US market and the surge of investment interest in anything remotely related to artificial intelligence (AI), the Australian Information Technology sector posted a double-digit gain for May.
The Australian Dollar (AUD) continued its weakness against the USD, finishing the month 1.6% down at USD 0.6505.
Table 2: Australian share market performance – May 2023
S&P/ASX 200 Accumulation Index -2.5%
S&P/ASX 200 Industrials Total Return Index -2.0%
S&P/ASX 200 Resources Total Return Index -3.9%
S&P/ASX Small Ordinaries Total Return Index -3.3%
S&P/ASX 200 A-REIT Total Return Index -1.8%
Source: Factset, financial data and analytics, May 2023
Large Caps (S&P/ASX100)
The S&P/ASX100 performed in line with the broader market finishing down by 2.4% for May. Best performer was Allkem (+21.2%) which announced an all scrip merger with US listed company Livent. Xero’s share price rose (+17.8%) on higher guidance along with the rise in the broader Technology sector. Lynas Rare Earths (+16.8%) also performed well after receiving a six-month extension to its Malaysian operating license. IDP Education shares (-22.5%) were sold off sharply on news that the Canadian government was opening the (IELTS) English testing market to another provider. Whitehaven Coal (-21.4%) fell on lower coal prices and Treasury Wine Estates (-16.6%) shares were down after the company flagged pressures in low margin wine.
Listed property
REITs finished the month down by 1.8% compared to the 2.5% decline in the S&P/ASX200 Total Return Index. Consistent with the declines across consumer stocks was the performance of the Retail AREITs which finished down by 5.2% for May. Diversified AREITs(-3.4%) were also down, while Office (+4.6%) and Industrial AREITs (+1.6%) gained ground.
Written 5 June 2023.
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