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Farewell 2023, hello 2024

Farewell 2023, hello 2024

Despite wars in Ukraine and the Gaza Strip, and the collapse of the Silicon Valley Bank in March 2023, the Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) rose by an average 111 per cent over calendar 2023. This greatly assisted the performance of the US-based Nasdaq, up 43.4 per cent for the year.

Further excitement came from the halving of the U.S. annual rate of inflation, which slowed to 3.1 per cent in November. Consensus has shifted to the view most Central Banks have completed the tightening of their official cash rates, and some Central Banks are likely to commence easing as 2024 progresses, and their economies slow further.

Other stock market indexes which did surprisingly well in 2023 included the Japanese Nikkei 225 (+28.2 per cent), the U.S. S&P 500 (+24.3 per cent), the German DAX 30 (+20.3 per cent), the Indian Sensex (+18.7 per cent) and the French CAC 40 (+16.5 per cent).

Over 2023, the Australian All Ordinaries Index put on a solid 8.4 per cent, excluding dividends. The Hong Kong Hang Seng (-13.9 per cent) and the Shanghai Composite (-3.7 per cent) disappointed, whilst the NZ50 Gross was hit by the economic effects from the 5.5 per cent official cash rate.

The biggest turnaround came from U.S. 10-year treasury bonds, which breached 5.0 per cent in mid-October and then rallied down to 3.87 per cent by year-end. Despite negative global events and fears of out-sized U.S. budget deficits continuing, this turnaround was a welcome shift. The rally in UK ten-year gilts to 3.56 per cent – post the departure of Prime Minister Liz Truss and her Chancellor, Kwasi Karteng – and the German ten-year bunds to 2.02 per cent, was significant.

On the commodities front, Gold rallied 13.3 per cent to US$2,072/oz. whilst iron-ore jumped 17.9 per cent to U.S.$136.16/tonne, almost guaranteeing the second consecutive small Australian federal budget surplus for Fiscal 2024.

On the currency front, the Australian dollar was relatively flat against the U.S. dollar, after troughing at U.S.$0.63 in mid-October, which coincided with the peak in U.S. ten-year bonds. It was weaker against both the British Pound (-6.9 per cent) and the Euro (-6.6 per cent).

As we head into 2024, the question on everyone’s lips is whether the war on inflation has been won. Central Banks do not want to ease too quickly and then watch inflation bounce. Central Banks cannot control food prices, and white rice, for example, which feeds billions of people globally is up 60 per cent in U.S. dollars in two years, to the highest level in 15 years.

And what happens if Russia successfully blocks Ukraine’s critical grain exports? Vladimir Putin must be reassured with the bitter debates over Ukraine in both the U.S. and EU. The turnaround in sentiment from mid-October, driven by the decline in inflationary expectations and the subsequent sharp rally in the U.S. long bonds, is worth repeating.

6 months and 12 month returns to 31 December 2023

  31-Dec 30-Jun 31-Dec 6 months to 12 months to
  2022 2023 2023 31-Dec-23 31-Dec-23
        % Change % Change
           
Indicies          
All Ordinaries 7221.7 7401.5 7829.5 5.8% 8.4%
S&P 500 3838.5 4450.4 4769.8 7.2% 24.3%
Nasdaq 10466.5 13787.9 15011.4 8.9% 43.4%
Nikkei 225 26094.5 33189.0 33464.3 0.8% 28.2%
FTSE 100 7451.7 7531.5 7733.2 2.7% 3.8%
Dax 30 13923.6 16147.9 16751.6 3.7% 20.3%
CAC 40 6473.8 7400.0 7543.2 1.9% 16.5%
Shanghai Composite 3089.3 3202.1 2974.9 -7.1% -3.7%
Hang Seng 19781.4 18939.6 17023.0 -10.1% -13.9%
Sensex (India) 60840.7 64446.0 72240.3 12.1% 18.7%
NZ50 Gross 11473.2 11938.4 11770.5 -1.4% 2.6%
           
Bonds          
US 10 Year Bonds 3.88% 3.84% 3.87% 0.03% -0.01%
German 10 Year Bunds 2.57% 2.39% 2.02% -0.37% -0.55%
UK 10 Year Gilts 3.67% 4.39% 3.56% -0.83% -0.11%
Japan 10 Year Bonds 0.41% 0.39% 0.63% 0.24% 0.22%
Australian 10 Year Bonds 4.05% 4.03% 3.96% -0.07% -0.09%
Australian 11am Call 3.10% 4.10% 4.35% 0.25% 1.25%
           
Commodities          
Gold (US$/oz) 1829.1 1918.7 2071.8 8.0% 13.3%
Oil (US$/bbl) 82.90 74.34 77.07 3.7% -7.0%
Iron-ore (US$/tonne) 115.50 110.75 136.16 22.9% 17.9%
Copper (US$/lb) 3.82 3.76 3.89 3.5% 1.8%
Wheat (US$/bushel) 7.92 6.84 6.28 -8.2% -20.7%
           
Currencies          
$US/$A 0.69 0.68 0.68 0.0% -1.4%
$A/GBP 1.75 1.77 1.87 5.6% 6.9%
$A/EUR 1.52 1.57 1.62 3.2% 6.6%
Yen/$A 93.68 89.30 95.45 6.9% 1.9%
INVEST WITH MONTGOMERY

Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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4 Comments

  1. Thank you for your response David, I understand coal, oil and gas prices are hard to predict, however I find it hard to understand why some of these companies are selling at such cheap prices, (I see warren Buffett has significant holdings in 2 energy companies) given some of there current equity, cash flow and roe. Will the fund consider these companies if they continue to be selling such low prices?

  2. There’s alot of talk about what’s trending, as value investors though isn’t it better to look at what’s not popular to find good companies at lower prices, what’s the funds thoughts on buying into energy companies? It seems to me they are cheap however I have limited knowledge wondering if I could get thoughts on this subject.

    • Hi Tony,

      Value investors generally focus on companies which are “out of favour” and hope the reason for this is temporary rather than permanent. Microsoft 20 odd years ago was a case in point, when it was selling on a PE of 10X. Now, with the excitement around AI, it is selling on a PE of closer to 30X. Within energy there are often opportunities. For example the Uranium price, after an appalling period post the Fukushima nuclear accident (March 2011), has jumped from US$30/lb. to the current US$94/lb since 2022. With decarbonisation on many governments lips, it should have a nice tailwind over the foreseeable future. Forecasting the prices of coal, oil and gas appear more complicated.

      Thank you, David.

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