Economic Review
Global Equity Markets
Global Share prices fell in August with central banks suggesting higher interest rates for longer as well as concerns over China’s sluggish economy and weak property market.
Wall Street’s benchmark indexes declined in August. While optimism on artificial intelligence (AI) is still prominent, investors have become more cautious after the recent strong share price gains. The US central bank warned that it was prepared to raise interest rates given inflation remains too high. US consumer price annual inflation came in at 3.2% in July which is still above the Federal Reserve 2% target. Federal Chair, Jerome Powell, highlighted that getting inflation back down to 2% is expected to require a period of below trend economic growth as well as some softening in labour market conditions.
Despite higher interest rates, US economic data has been a positive surprise this year with solid 2.1% annualised GDP growth in the June quarter. However, there are leading indicators of a looming slowdown with softer business surveys, subdued housing construction and a moderation in job openings.
European share markets also retreated with continuing worries over rising interest rates as well as the Russia – Ukraine conflict. The European Central Bank President warned that they were prepared to set interest rates at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to their 2% medium-term target.
Chinese share markets delivered sharply negative performances in August given concerns over subdued results for retail spending and continued weakness in the property sector. Notably the financial woes of China’s large property developers dominated the headlines. Evergrande filed for US bankruptcy proceedings on foreign debt while Country Garden recorded a large financial loss and requested a delay in debt repayments.
Japanese shares fared somewhat better, as its central bank provided an assurance that more flexibility would not lead to rapid increases in interest rates settings and bond yield targets.
Table 1: Global share market performance – August 2023
US S&P 500 -1.6%
US Dow Jones -2.0%
Euro Stoxx 50 -3.9%
German DAX -3.0%
UK FTSE 100 -2.5%
Japan Nikkei 225 -1.6%
China Shanghai Composite -5.2%
Source: Factset, financial data and analytics, August 2023
Australian share market review
Australian shares disappointed in August with a mild decline given concerns over China’s prospects as well as the Australian consumer. The Utilities and Consumer Staples sectors led the market declines given concerns about the consumer’s ability to absorb higher electricity & gas prices as well as rising mortgage interest rates and rents.
Information Technology declined in line with a more cautious view after their recent strong gains. Despite a rebound in the iron ore price to above US$110 per ton, the Resources sector posted a -1.8% negative return with concerns over China’s prospects. There were some positives with surprisingly strong gains for Consumer Discretionary and Real Estate on hopes that the Reserve Bank has ceased raising interest rates. August is also reporting season for most Australian companies and while results were largely in line with expectations, the prospect of rising costs and a slowing economy saw reasonably soft guidance for the FY24 year which flowed through to earnings downgrades.
The Australian Dollar (AUD) lost ground against the USD, finishing the month 3.5% down at USD 0.6480.
Table 2: Australian share market performance – August 2023
S&P/ASX 200 Accumulation Index -0.7%
S&P/ASX 200 Industrials Total Return Index -0.3%
S&P/ASX 200 Resources Total Return Index -1.8%
S&P/ASX Small Ordinaries Total Return Index -1.3%
S&P/ASX 200 A-REIT Total Return Index +2.3%
Source: Factset, financial data and analytics, August 2023
Large Caps (S&P/ASX100)
The S&P/ASX100 performed in line with the broader market, finishing down 0.7% for August. The best performance came from Altium (+26.7%), the electronic design software platform provider, after it reported very strong revenue and profit growth for FY23 and guided to more than 20% growth in FY24. It was followed by Carsales.com (+15.6%) which also delivered a result above expectations citing solid performances across the business; in Australia resilient demand for used cars and in North America, adding more customers, helped boost growth. AMP (+14.3%) performed well after delivering a good half year result and declaring a partially franked 2.5 cent per share dividend.
The biggest decline came from Alumina (- 24.5%) after reporting a disappointing half year result and no dividend. This was followed by Resmed (-24.0%) which reported lower margins. And having risen by more than 21% in July, Block Inc shares were sold down in August, finishing the month down 23.7%. This followed the company’s quarterly update which included comments on consumer stress in Europe and Australia; nonetheless the company provided upgraded guidance.
Listed property
AREITs outperformed the broader market again in August with the S&P/ASX 200 AREIT index finishing up by 2.3% compared to the 0.7% decline in the S&P/ASX 200 Total Return Index. Industrial AREITs delivered a 12.9% increase as Goodman Group shares rose by 13.7% on a strong profit result and outlook, including demand for data centre space for cloud computing and artificial intelligence related uses. The other AREIT sectors all declined, led by Office (-6.6%), Diversified (-2.1%) and Retail (-1.2%).
Written 5 September 2023.
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