Since the March 2009 Global Financial Crisis (GFC) low in share markets, Australian shares are up 138%, compared to a 310% gain in global shares in local currency terms and a 500% gain in US shares.
The impact of interest rate rises will hit consumers harder in Australia compared to some of our global peers. In the short term, this is negative for consumer spending in Australia but in the medium term it could be positive for the economy because it should mean that the RBA does not need to raise interest rates as much to get demand and, therefore inflation to slow.
The past week saw share markets rebound helped by optimism about a peace deal in Ukraine, a fall back in oil prices, relief that the Fed’s first rate hike was broadly as expected with the Fed seeing the US economy as strong and indications that China will provide more policy stimulus partly to combat covid related lockdowns.
Quarterly Portfolio Rebalance Summary - March 2022
Our base case remains that the first hike will come in August but there is a chance that it could happen earlier, in June. That’s recently been reinforced by the January jobs data where the unemployment rate came in at 4.2 per cent, notwithstanding Omicron restrictions during the month, although the most recent official wages data suggests a rate rise won’t happen until August.
Some early thoughts on financial markets given the Ukrainian conflict
2022 has not been without incident. So far, we’ve experienced; rising rates, breakaway inflation in the United States, and now what has been described by Boris Johnson as the most serious ground war in Europe since 1945 when Russia Invaded Ukraine on Thursday the 24th of February.
Firstly, our thoughts and prayers go to those impacted by conflict.
In summary, we do not see this conflict changing our constructive perspective on equity markets, particularly those outside the US. Portfolio managers will however need to consider their positioning, as volatility looks set to continue, creating significant disparities in performance across stocks, funds and ETFs.
We outline key impacts investors will need to consider when re-evaluating their portfolios.
Key Points
Inflation will likely slow later this year but remain well above pre-pandemic levels over the medium term.
Wages growth is likely to pick up to 3% this year.
A Russian invasion of Ukraine risks a short term hit to shares followed by recovery over the next 3 to 12 mths.
Australian home prices are likely to peak later this year followed by falls into 2024.