Investment update – June quarter 2023

Here’s a look at what’s been happening in investment markets recently and what it means for your superannuation.

The big picture

Our last update questioned whether all the rapid interest rate rises by central banks across the globe were having the desired impact. Data suggests inflation is slowing but remains high and needs to come down further.

Over Quarter 4, the US Federal Reserve raised interest rates by 0.25% in April, but kept interest rates unchanged in May and June. In Australia, the RBA did the opposite, keeping them on hold in April, and then raising rates by 0.25% in May and June.

Several central banks gave indications of further interest rate rises in the future. The financial markets accepted this, but also expect rates to start to fall before the end of the calendar year or next year.

In the end, the main cause of volatility (in good and bad ways) was the US debt ceiling negotiations going down to the wire, expectations of business growth related to artificial intelligence (AI) developments by a few large technology firms, and China experiencing economic recovery challenges with a property market slump.

What happened in markets?

Global stock markets fluctuated over the quarter, ending on a positive note with improved market sentiment due to signs of economic growth. Even the European stocks rebounded following improved industrial production data after the European economy technically went into a recession during the quarter.

Australian stock market performance was driven by a strong rebound in resource stocks, with a spike in iron ore prices following a fall in previous months, as other commodity prices fell.

Central bank decisions on interest rates added volatility in currency markets and Government Bond returns. Movements reflected differences in local economic outlooks, inflation expectations, and consequently future interest rate changes.
The rise in bond rates meant negative returns were delivered by global listed property and infrastructure investments, while Australian listed property and infrastructure achieved a moderate return.

How your investments are performing

Australian and International Equities (unhedged), Australian and International Infrastructure, and Australian Private Equity all performed well over the quarter, with returns above the benchmark (the target we set to measure performance).
Higher interest rates can decrease the value of properties, and even though returns were negative, the fund’s managers were able to minimise the impact, because we were underweight in this sector (meaning we had less money invested in this asset class).

The upside of higher interest rates is that the cash rate increased, and because we invested more money in this asset class, this created returns above the benchmark.

Looking ahead

Some central banks have started to pause rate rises as they assess the economic situation. Is the economy slowing? If it is, is it coming back down to the preferred range? Even though the headline inflation is moderating in several economies, core inflation remains above the target, which in Australia is 2-3%.

This is a precarious situation. The central banks do not want to ‘stall’ the economy (create a recession) by raising interest rates further and too high to combat inflation. At the same time, they want to slow down consumer spending, because it also contributes to inflation.

But consumer spending is not slowing as expected because there is stronger jobs growth than anticipated, there is increasing wage growth in the US, and a shortfall in Australian housing supply which is driving up rental prices. All these factors cause people to spend more money, which can drive up inflation.

Looking beyond the central banks’ efforts, there may be further volatility within financial markets due to various regional political tensions and conflicts, which can significantly disrupt economic supply chains.

Need help?

Stay up to date with investment updates by visiting Investment updates and Crediting rates.
To discuss your investments in more detail, you can contact us on 1300 360 988 or by emailing mail@firstsuper.com.au.

Issued by First Super Pty Limited (ABN 42 053 498 472, AFSL 223988) as Trustee of First Super (ABN 56 286 625 181).

Past returns are not an indicator of future returns.

This article contacts general advice which has been prepared without taking into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you or read the Product Disclosure Statement (PDS) before making any investment decisions. To obtain a copy of the PDS or Target Market Determination, please contact First Super on 1300 360 988 or visit our website at firstsuper.com.au/pds.