MARKET COMMENTARY – September 2023

by Chris Limberg on Sep 30, 2023

September Quarter in Review

The ASX200 closed 154 points lower falling 2.15% for the September quarter. The new Reserve Bank Governor, Michele Bullock, began her seven-year term in September. Governor Bullock in her first board meeting reiterated the bank’s commitment to do what is necessary to reduce inflation to       2-3% p.a. The August monthly inflation indicator continued trending lower at 5.2%, however, inflation is not forecast to return to the target range until late 2025. The Board highlighted fuel and rent prices as key areas driving inflation.

State of Australia

The Australian economy remains resilient continuing to expand albeit at a slower pace than recent years. Latest economic data suggests a continuation of current themes with inflation to moderate slowly, unemployment to drift higher and household consumption to remain constrained. With the RBA committed to doing what is necessary, economists at NAB now predict interest rates to be higher for longer with another rate increase predicted at the next RBA board meeting in November with rate relief not anticipated until late 2024.

Limberg Asset Management Portfolio Positioning

The Australian equity market statistics indicate constituents of the ASX200 on average are trading around long term market average valuations, suggesting prices are not cheap nor expensive. In an environment of economic uncertainty driven by inflation and interest rates in this scenario we remain vigilant with a preference for capital protection by continually assessing company exposures, valuations, outlook and management.

In equities, we have been reviewing the themes emerging from the August reporting season. Corporate Australia in aggregate, revenues remain robust but earning have suffered due to higher costs, from inflation, outpacing revenues. Albeit a tough reporting season the market is presenting attractive prices in select segments. Though, as economic and market intrigues continue, our preference is for companies that maintain increased certainty of earnings or a select few companies with high potential for sustainable growth, but all companies must possess high-quality management teams based on their ability to deliver shareholder returns.

Income focused portfolio holdings recorded another quarter of consistent performance. With all distribution payments being made on time and in line with target returns. As the interest rate cycle matures, we will continue to assess the balance of exposure within client portfolios remains appropriate.