Global equity markets recovered in May. The US S&P500 Index gained +4.96% and Australia’s S&P/ASX 200 Index added +0.92%.
The run of resilient growth and stubbornly high inflation data continued in May. Equity markets have focused on the positives, particularly the broadening of growth into the major economies of Europe and China.
Last year’s Chinese economic recovery came after the government abandoned its “Zero COVID” policy in late 2022. More recent efforts to stabilise the real estate market have renewed hopes for sustainable growth. The International Monetary Fund has raised its Chinese growth targets to 5% and 4.5% for the next two years.
Over the past few years, Europe has also had to contend with several challenges. A gas price spike in 2022 hit the manufacturing sector and consumers, who were also grappling with significantly higher interest rates. Attention has shifted to an improving manufacturing sector and potentially lower interest rates in the months ahead, which means the European economic recovery could have legs.
JP Morgan’s Global Composite PMI is a leading indicator of global growth. Each month, around 27,000 manufacturing and service sector companies in over 40 countries are surveyed on their current situation and future intentions.
The latest survey (5 June) was headlined, “Growth rate of global economy accelerates to fastest in a year during May”. It concludes, “…gains in the new orders, employment and future activity also bode well for sustaining the recovery in the coming months, as does the broadening of the base of the upturn.”
Commodities markets are not fully buying the global growth story, with copper rallying but the price of oil easing.
On the topic of copper, it is difficult to overlook BHP’s recent activity in this sector. Copper lies at the heart of its US$49 billion tilt for UK-based Anglo-American (since pulled), which came after its US$6.4 billion acquisition of Australian copper miner Oz Minerals last year.
Copper is central to BHP’s growth strategy and its plans to reduce its earnings dependency on iron ore. BHP is betting that supply will struggle to keep pace with the demand for the metal to build renewable energy infrastructure, energy storage systems and electric vehicles (EVs).
Another consequence of stronger economic conditions is persistent inflation and a higher interest rate outlook. US and Australian rate cut expectations have been significantly pushed back since the start of 2024.
In January 2024:
The current macro set-up of broadening growth, persistent inflation, and higher interest rates favors economically sensitive exposures such as Emerging Markets, European, Equal-Weight US equities, and Floating- rate Bonds.
I remain focused on diversification and positioning portfolios towards investments that can perform well in different economic scenarios.
I particularly like Global for its attractive valuation, inflation-linked earnings, structural growth opportunities and earnings resilience should an unexpected downturn occur.
Are Australian interest rates high enough?
Global Infrastructure fundamentals are attractive.
* As measured by the FTSE Developed Core Infrastructure 50/50 Index.
We favour Global Infrastructure over Fixed-rate bonds.
* Global Infrastructure assets are currently paying distributions of 3-4% pa, which will likely grow over the next 4-6 years (in line with stronger earnings).
ASSET CLASS PERFORMANCE
Australian Equities
International Equities
Property and Infrastructure
Fixed Income
As always if you require more information please don’ hesitate to contact me.
Philip Connor-Stead AFP® Adv. Dip. FP
Principal
New Horizon Wealth
Authorised Representatives of Lifespan Financial Planning Pty Ltd ANB 23 065 921 735 AFSL 229892
With a deep understanding of our client’s objectives, we provide tailored solutions to assist clients in achieving their financial goals.
New Horizon Wealth PTY Ltd ACN 632 726 222 is a Corporate Authorised Representative of Lifespan Financial Planning Pty Ltd
AFSL No. 229892
ABN 23 065 921 735
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