by Chris Limberg on Dec 31, 2023

December Quarter in Review

The ASX200 closed 553 points higher, a 7.27% increase for the December quarter. With December alone accounting for the bulk of the increase of 515 points. The Reserve Bank (RBA) raised interest rates again in November to 4.35% conceding Australian inflation has peaked but remains higher and persistent with estimates returning inflation to the target band of 2-3% by end of 2025. The RBA stated that further movements are dependent on data and risk assessment in:

  • The Global Economy
  • Domestic consumption
  • Inflation outlook
  • Labour market

State of Australia

The Australian economy continues to expand at a below trend rate. Household budgets remain tight, with Christmas now past the expectation is for lower spending in the coming months. Inflation continues to trend lower although slower than the RBA desires. Unemployment drifts marginally higher. While these metrics are moving in the right direction to dampen inflation progress remains slow.

2024, The Year ahead

The sharp rise in markets in December indicates the market believes the interest rate raising cycle is at or near completion and rate cuts are close with the first-rate cut expected by June 2024. However, caution should be taken given the resolve of the RBA to control inflation as a priority indicating definitive signals of inflation being conquered prior to any interest rate easing. Barring any further crisis, interest rates are not going back to zero with many speculating a landing between 2.5-3% which remains a long way from today’s interest rate of 4.35%.

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.

Equities, 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. As the interest rate cycle matures the earning on this portion of portfolios is expected to moderate in line with official interest rates with payments adjusting proportionally.