March Quarter Review
The March quarter extended the ASX200 rally closing at 6,791, up another 3.1% for the period. The market responding to easing concerns regarding:
- Covid-19 remaining under control locally and the vaccines rollout begun despite a slow start
- Improving Australian economy not withstanding the end of the Job keeper program
Current State of Australia
The Australian economy continues its strong recovery as the Australian market looks beyond the health crisis. Unemployment rate continues to fall with the most recent recording 5.8% with the number of jobs in the economy returned to its pre-pandemic levels. However, The Reserve Bank of Australian (RBA) would like to encourage wage inflation by continuing to drive down the unemployment rate. Whilst continuing their commitment to stimulating the economy to encourage inflation back to its target range of 2-3% forecasting no raise in interest rates until 2024,
House prices remain buoyant continuing to record small monthly increases. With continued low interest rates supporting increased borrowing potential and the RBA focusing less on prices and more on lending standards the fear of missing out appears to be driving prices. We are aware of the movements made by the New Zealand Government to limit phenomenal house price growth by increasing the tax burden and support for first home buyers.
Our conservative approach to equities continues despite the continued strong gains of the ASX 200. To convey a sense of the distortion of low interest rates on the ASX 200 let us review the long-term average for the ASX 200 over the last 30 years:
- Dividend yield – 4.1%
- PE ratio – 15 times earnings
- Earnings yield – 7%
The equivalent market statistics today:
- Dividend yield – 2.8%
- PE ratio – 55 times earnings
- Earnings yield – 1.7%
These statistics convey the significant asset inflation not captured by RBA measurements. However, despite elevated valuations, constructive investment trends and opportunities can still be found consisting of reasonable statistics and or promising economic trends such as the emerging electric vehicle market.
Stock Focus – Nuix NXL
Nuix is a company we have been building into portfolio since its IPO in December last year. The company is a leading provider of investigative analytics and intelligence software with an extensive and impressive customer base with a global footprint. Nuix software has been used in headline investigation over the last 15 years including the Panama Papers, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, organised crime rings and terrorist activities. Operating in digital forensics and compliance software markets estimated to be worth more than US$27 billion and growing strongly. Whilst the share price has been volatile since listing the company is profitable with no debt and we believe the share price will in time follow increased earnings.