Investment update for April 2023
During the month of April, global stocks produced positive returns as economic growth was more resilient than expected. Despite experiencing further stress in the banking sector, financial markets were bolstered by more optimistic economic growth performance in April.
US stocks overall produced positive returns, although the Technology sector was flat over the month. The pace of growth in the US economy slowed in the first quarter of 2023, as real GDP grew 1.1% year-on-year, down from a 2.6% expansion in the December 2022 quarter. However, the Purchasing Managers Index (PMI) surveys in April surpassed expectations and indicated the manufacturing sector has moving back into expansion. Overall labour market conditions in the US remain tight, although layoffs are increasing in some sectors.
The Australian stock market ended April higher, although Resources stocks were down as commodity prices fell, particularly the price of key Australian export commodities, iron ore and coal. The decline in commodity prices was a driver of the depreciation of the Australian dollar against most major currencies.
China and emerging market equities were less positive. The release of China’s GDP economic growth for the first quarter of 2023 surprised on the upside, which was a positive development, and China’s exports were a lot higher than expected, supported by strong exports to Russia and ASEAN countries. In addition, there are potential signs of stabilising in China’s property demand with a meaningful jump in house price and household borrowing. However, ongoing concerns around geopolitical tensions, including risks from US investment regulations, offset the positive economic outcomes.
Inflation continues to moderate globally, with headline inflation falling due to the decrease in energy prices, but inflation rates, particularly core inflation, remains high.
Despite the stress facing the banking sector, markets are still expected the US Federal Reserve to raise interest rates further, which it did by 25 percentage points early in May. However, expectations are that the Fed will now pause interest rate rises and the market is pricing that it will start cutting rates later in 2023, and these expectations contributed to US government bond yields falling. European government bond yields rose as the market is pricing in the European Central Bank (ECB) to raise interest rates further amid continued wage pressures.
Overall global bonds produced a small positive return due to US yields falling, while Australian government bonds produced a small negative return with yields rising.
Listed property and infrastructure produced solid positive returns, with market expectations that interest rate rises are nearing the end. Australian residential property prices stabilised after previous falls, as the return of overseas migrants and a shortage of new homes listing on the market are factors offsetting the downward pressure of higher interest rates.