Monthly Data
By Paul Saliba
Sector Head of Equities & Fixed Income Fund Research
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The year ended strongly with falling inflation and the prospect of central bank interest rate cuts giving investors a more optimistic view of 2024 and beyond. All assets, excluding Gold in Aussie dollars, saw strong gains through the month. Gold (-1.7%) in Australian dollar terms saw weakness as investors sold out of the safe-haven asset to buy growth and yielding assets.
The Australian share market (7.3%) outperformed global share markets with value companies slightly ahead of growth companies. Small companies (7.2%) were only just behind in a month where all areas of the market saw gains. The best-performing sectors in December were Health Care (9.1%), driven by the three largest constituents, CSL (9.3%), Sonic (10.0%) and Cochlear (9.4%). Material (8.8%) and Information technology (7.4%) made up the top three sectors for the month.
The worst Australian sectors were Utilities (2.5%), Energy (3.4%) and Consumer Staples (5.1%). Australian Shares ended 2023 up 12.4%, underperforming International markets (21.7% hedged, 23.2% unhedged) significantly, where currency exposure added to returns in 2023.
In December, the International share market (3.9% hedged) underperformed the local market and currency moves detracted for the month with unhedged International shares (1.8%) not as strong. The S&P 500 (4.5%) outperformed, with the tech-heavy Nasdaq Composite (5.5%) also outperforming. European stocks (3.3%) underperformed slightly. Industrials (4.5%) was among the strongest sectors internationally with Materials (3.6%) and Financials (2.8%). Energy (-2.3%) struggled in December as the prospect of economic weakness impacted confidence around demand and future profitability in the sector. Over the 12 months to the end of December, International Shares were exceptionally strong and was the best performing asset class of 2023.
China (-5.2%) lagged global share markets with India (5.1%) and the broader Emerging market (1.0%) faring much better. Emerging Markets underperformed in 2023 largely due to China’s weak economic recovery and poor performance with Chinese stocks down over 11% for the year.
Australian listed property (11.5%) was the strongest performing asset class in December. This was driven by Charter Hall (15.8%), Scentre Group (12.8%) and Goodman (11.2%) all seeing strong investor demand through the month. Australian Listed Property (17.6%) delivered significant outperformance to the broader Australian share market over the year outperforming Global listed property (12.7%) on a currency-hedged basis.
Fixed interest markets were also strong in December, with the Australian market (2.7%) not as strong as the international market (3.0%). Returns were driven by a decline in yields with the Australian 10-year Government bond yield falling to 3.967% well off its peak of 4.968% at the start of November. Similarly, the US 10-year ended December at 3.866%, well off its peak of 4.99% in October. Pleasingly, in 2023, Fixed interest was back to outperforming cash, with the Australian market (5.1%) and the international market (5.3%) well ahead of Cash (3.9%), with much of the outperformance coming in the last quarter of the year.
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Australian Shares
Conditions in Australia remain challenging, with consumers stretched by both rising prices and much higher loan repayments. This is exacerbated by weakness in real income growth. While retirees in Australia have seen their defensive asset income grow, being less than 20% of the population and generally spending less, the offset from this demographic is not significant.
Australian shares (8.4%) gained strongly over the quarter with Small cap (8.5%) slightly ahead of the broader market. Materials (13.4%) was the strongest sector for the quarter with strong demand and high commodity prices. This was driven by BHP (13.3%), Rio Tinto (15.4%) and the third largest company in the sector Fortescue (30.1%). Health Care (13.1%) was a close second as investors saw value in a part of the market that has struggled through much of 2023 with CSL (23.4%) and Cochlear (24.0%) driving the strong performance in the December quarter. Financials (8.2%) also made up lost ground with CBA (15.8%), Macquarie (14.1%) and Westpac (11.2%) driving the sector higher through the quarter.
Energy (-9.1%) lost ground as Fund managers avoided the sector globally and energy prices falling. With the outlook for economic growth weak, demand for energy is expected to decline and oil and gas prices are expected to follow. This saw Woodside (-9.3%) and Santos (-0.9%) fall in the December quarter along with coal company New Hope (-10.6%) while Whitehaven (0.5%) was essentially flat for the quarter. Utilities (-2.1%) was the only other sector to fall in the quarter with the third weakest sector Consumer Staples (0.2%) flat for the quarter.
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International Shares
International shares (9.2%) hedged outperformed the Australian market, currency moves worked against unhedged investors in the December quarter with Internationals share unhedged (5.3%) underperforming both hedged International and Australian shares.
Information Technology (11.3%) was the best performing sector driven by US giants Apple (12.7%), NVIDIA (14.2%), Meta (17.5%) and Alphabet (12.5%) all performing strongly. Industrials (7.3%) and Financials (6.5%) made up the top performing sectors in the global market.
Energy (-8.0%) was the weakest performing sector globally with Consumer Staples (-0.2%) the only sectors to lose ground (on an unhedged basis). Health Care (0.3%) was flat for the quarter.
Over the last 12 months Information Technology (50.5%) has seen a remarkable rebound indicating that those who have suggested that the leaders of the prior cycle are unlikely to lead the next cycle may be very wrong. However we see this as an indication that perhaps the last cycle is actually not over and should we see recession then a change in market leadership may take place.
The US S&P 500 (11.7%) was performed strong in the December quarter well ahead of European companies (5.6%) and Emerging Markets (2.0%). Emerging Markets were held back by the weakness in China (-9.4%) which lost significant ground over the quarter.
The last 12 months has seen global growth stocks (36.6%) surge ahead of value companies (10.8%) as markets reverted back toward the themes prior to the global central bank rate hikes.
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Property & Infrastructure
Australian listed property (16.6%) was the strongest asset class globally and well ahead of the broader local share market. Global listed property (12.7%) also outperformed its broader global share market and was the second strongest asset class for the quarter.
Global listed infrastructure (7.8%) on a currency hedged underperformed the international share market on a currency hedged basis as the prospects for economic slowdown and the appetite to buy other parts of the market weighed on this part of the market.
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Fixed Interest
Australian Fixed interest (3.8%) underperformed the International market (5.4%) which was impacted by the increasing expectation of rate cuts from the US Federal Reserve in 2024. Falling inflation and a resilient US economy gave investors increased confidence in a soft landing where the economy avoids recession and continues to grow. Bond yield fell as markets increased their conviction that central banks can ease policy with inflation being back within target.
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