30 Apr Matrix Norwest Asset Management (MNAM) Monthly Snapshot – April 2023
Australian stocks rose +1.83% over April. Gains were led by the Real Estate and IT sectors, which finished the month up +5.14% and +4.82% respectively on the back of a RBA rate hike pause, suggesting that the cash rate had peaked. These gains can also be attributed to cooling headline inflation data, which reduced from 7.8% in the previous quarter to 7.0% this quarter, indicating that the aggressive hikes carried out by the RBA seems to be having its desired effect.
Over to the US markets, there were developments in the US regional banking space (underpinned by regulators seizing First Republic Bank and selling its assets to JP Morgan), as well as a significant decline in deposits of US commercial banks, which have now fallen by $500 billion since the collapse of Silicon Valley SVB in March. However, this uncertainty in the banking sector combined with a slowing economy in previous months was overshadowed by the earnings outperformance, which lifted the S&P500 index +1.46% with eight of the 11 sectors finishing in the green. Communication services led the index higher, rising +3.56% with Consumer Staples, Energy and Financials also rallying more than +3% over the month.
Gold rose across the month, rising by +1.07% as central bank demand supported price levels. The bullion initially rose in April as easing hawkish concerns supported the asset.
The AUD fell over the month by -1.05%. The Aussie dollar started the month with a modest gain as the rise in oil prices benefited commodity currencies. The AUD then reversed course with the RBA announcing they were keeping rates on hold for the month.
In terms of economic outlook, we acknowledge that while headline inflation has started to show meaningful declines, a large portion of this decline can be attributed to a fall in goods inflation due to easing supply chain pressures, in part driven by the re-opening of China’s economy. However, services inflation remains relatively sticky and elevated which suggests that central banks globally still have work to do before the inflation problem is fully addressed. In addition, the yield curve is at its most inverted level in decades, which has historically been an indicator of a recession. This combined with concerns with US regional banks as well as rising geopolitical tensions suggests that the stock market offers a less compelling risk-to-reward ratio, especially as corporates are unlikely to beat earnings expectations moving forward. We, therefore, continue to hold a defensive stance and wait to see how these macroeconomic developments pan out.
In addition to the above commentary, below are some key global headlines during April we thought would be worth a read:
- The rally in the S&P500 YTD has been driven by 20 stocks, the market cap of the remaining 480 stocks has basically gone nowhere. The implication for investors is that this market is not driven by broad-based higher growth expectations but instead by what has happened with rates.
- The demand for paper money is at a 20-year low, according to British currency maker De La Rue, the world’s largest commercial printer of banknotes. The drop in orders comes as more consumers switch to online, card, or contactless transactions instead of paying with cash. The 200-year-old firm, which designs a third of banknotes worldwide, slashed its full-year forecasts in April, prompting its shares to fall 30%.
- New data from the UN confirms that India is set to become the most populous nation on Earth, edging out its neighbour and rival China by approximately 3 million people, by the middle of this year. The bigger question is whether India — which became the world’s 5th largest economy in 2022 — can earn its place at the table as a global superpower, a position China has won over 40 years of economic growth.
- Apple opened its first and second India stores. Samsung maintains its crown as the largest smartphone producer in volume and sales, it is still Apple that’s extracting the most from its customers. Counterpoint Research show that Apple collected 85% of the industry’s operating profit last year, everyone else, Samsung included, split the remaining 15%.
- Australia is the latest to ban the TikTok on government devices. TikTok was the second-most-downloaded app in Australia last year — behind MyGov.
- The global electric vehicle (EV) market has entered a cutthroat phase with Tesla initiating a price war to capture further market share. Tesla sells more electric cars than all its rivals combined, from GM/Ford to VW/Toyota. The unintended consequence, apart from a fall in margins, Tesla has risked its relationships with existing Tesla owners who now face steep falls in the resale value of their Model 3 and Model Y SUVs.
- The richest man in the world makes handbags and luxury brand clothing. Bernard Arnault, the CEO of LVMH, is now worth more than Warren Buffett and Mark Zuckerberg combined. Arnault, is solidifying his lead over 2nd-ranked Elon Musk. The Frenchman behind LVMH saw his fortune soar by US$12bn through April to almost US$210bn, a record high.
- Tupperware’s share price fell by close to 50% in April, as the company warned it was running out of cash. Once a retailing giant — the company was valued at US$5bn a decade ago – failed to adapt to retail changes, sticking to door-to-door sales while customers migrated to big-box stores and then online. Its sales force, which numbered 800,000 a decade ago, is a third as big today.
- The Finnish flag was raised outside the NATO headquarters in Brussels as the nation officially became the 31st member of the defensive alliance. Despite adding less than 1% to the total population of NATO member countries, Finland’s admission is monumental as the country shares an 832-mile border with Russia.
- The Phantom of the Opera has finally shut on Broadway after 35 years, a 2-month extension and nearly 14,000 performances.
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