2023/24 has been a year of both opportunities and challenges in the financial markets. In this video, Thabojan Rasiah, our CEO, reflects on the client wealth journey, recent market performance, and offers insights into the economic outlook and key investment themes for the year ahead.

RECENT MARKET UPDATE

1. After a great financial year of performance, July saw an increase in equity market volatility and drops in markets generally.

2. News versus reality

   1. The US S&P500 was down 3%, but then rose 2%.

   2. The Japanese market entered a technical bear market, but then rose 13%.

   3. And the Australian ASX200 fell 3.6%.

3. What caused the recent drop in share markets?

   1. Firstly, the Japanese Central Bank increased interest rates. They did this to protect their currency (Yen), but they didn’t factor in how much it would impact their share market.

   2. At the same time, the US was releasing poor economic data, and keeping interest rates on hold, which added to the short-term worry.

   3. Also, the Nasdaq (technology stocks) has taken a hit… this has been coming with valuation of tech stocks being too high for too long.  Our portfolios always underweight overvalued stocks (which has been technology recently) so the impact has been less on our clients.

4. So what now?  Is this normal?

   1. After some volatility recently, it is no surprise that we are feeling a bit worried.  And if we’re watching the media, then of course, they are playing on our fear as well.

   2. But did you know that 2024 has been unusually stable compared to most years so far? This great chart shows us why we shouldn’t be surprised to expect some volatility.

      

   3. The other thing that we often forget as investors is that the US share market experiences a correction almost every year!

   4. In fact, a 5% drop is almost guaranteed, a 10% drop happen two thirds of the time and a 15% drop happens nearly every second year.  This chart provides us with some great perspective.

      

   5. We don’t know exactly where the market will end, but the S&P500 was up 20% earlier this year… and is still up 13% for the year.

5. Our view of the future

   1. To state the obvious… no one has a crystal ball, so trying to predict the future will drive you mad.

   2. Don’t listen to people who are trying to predict the future because… obviously… no one can predict the future!

   3. Some get lucky, but nearly everyone that tries to predict the future gets it wrong.

6. Your portfolio

   1. Your portfolios have been deliberately designed to give you the best chance of you achieving your specific goals.

   2. These have been done with a deliberate focus on understanding the values and purpose for you and your family.

   3. Our Investment Philosophy is built on proven principles to manage risk and optimise your long term performance.

2023/24 MARKET REVIEW

1. Market Performance

   1. Global shares broadly performed well returning around 21%.

   2. Japanese and US stocks outperformed, with US tech stocks benefiting from AI.

   3. Chinese shares fell again.

   4. Australian shares returned around 12%.

   5. Australian residential property rose 8%, driven mainly by Perth, Brisbane and Adelaide.

   6. Bond returns stabilised with modest returns, following 2022 in which they had their worst loss in decades.

2. Inflation has been lower globally

   1. This has led central banks to stop increasing rates.

   2. In fact, central banks in Switzerland, Sweden, Canada and the Eurozone have started to cut rates.

   3. The US and UK are expected to start cutting rates around September.

   4. The RBA (Australia) is expecting to cut rates in 2025.

3. Other Global Economic Factors

   1. Most economies around the world have flirted with recession, but global growth has generally held up better than expected.

   2. China remains a worry with concerns about their property slump, but they have other areas of the economy still going well.

   3. Geopolitical events continue to cause concern, with the continued Ukraine war, the Israel/Gaza conflict and tensions between the West and China.

   4. AI continues to have a lot of enthusiasm, which has pushed technology stocks higher, albeit with the recent pullback.

OUTLOOK AND INVESTMENT THEMES

1. Global Economy and Markets

   1. Of course we can’t predict the future, but here are some themes that are being discussed in the market.

   2. After the domination of mega-cap stocks and tech, particularly in the US, it seems we may be seeing a rotation into value and small cap stocks, with some recent outperformance in those areas.  We know that small and value stocks outperform over the long term and our investment philosophy and portfolios are positioned well to capture this.

   3. Expected earnings still remain respectable, although we will have to see if they can live up to the increasingly high earnings expectations.

2. Australian Markets

   1. Inflation has been moving sideways this year, and although we don’t expect a rate rise, it may be until 2025v before the RBA looks to cut rates… time will tell.

3. Artificial Intelligence

   1. AI has been everywhere!  Anything we see or do has AI associated with it.  But although it may be losing it’s shine a little, it is hear to stay and the efficiency and innovation benefits remain. 

   2. I suspect that all the ‘fake’ AI will be more found out over time.

4. Crypto

   1. Crypto, digital assets and everything that comes with it is still carrying on, although less in the spotlight.

   2. We are still seeing a lot of volatility in this area and it is definitely not a safe place to invest, particularly without understanding the fundamental economic drivers of any particular digital asset.

   3. Economic use cases continue to be developed, but whether block chain technology becomes the next internet, we won’t know for many years.

5. Private Markets

   1. Private markets have been the most popular investment in recent times, gaining a lot of popularity with a plethora of investment funds popping up.

   2. These are not new… but just a resurgence of an asset class… well not really an asset class, but a different way of investing compared to listed markets.

   3. As with anything that suddenly becomes popular, we always approach with caution… it is a fad?  Do we understand the fundamentals of the investments and strategies?  What are the risks?  These are all the right questions.

   4. The challenge for investors is that with so many options cropping up, one must be vigilant to understand what is going on under the bonnet… something we take very seriously with any investment.

   5. The number 1 rule of risk management is making sure you don’t lose permanent capital.

If you would like to discuss any of these themes further, please contact us on hello@rasiahprivate.com.au