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As I See It: March 2024


A very strong few weeks on the stock market with many indices hitting new all-time highs which has also been reflected in the residential property market in Australia. Naturally, you would expect pullback over the next few weeks with the main catalyst being an expectation that interest rates will drop later in this year make all growth assets more valuable on a relative basis.

There is however quite a disconnect with the real economy where the country has been treading water and without the very substantial amount of immigration last year would have been in an actual recession. So very much a tale of two communities – those with assets are doing extremely well and those renting and with unsettled work really struggling to keep their head above water.

RBA and Interest Rates

A reminder that the RBA has changed its reporting down to 8 times a year from 11 and assuch we will have less frequent updates on interest rate policy.  There is an expectation from the futures markets that rates will begin to drop later in the year and continue to do so to a target rate of 2 to 2.5% over the next 18 months. This clearly is subject to any major changes in the economy and any major world events that may skew decision making in the future.

It is important to recognize the very real impact that artificial intelligence is having on speeding up decision making and driving efficiency in larger corporates. A good example of this is the CBA whose share price is now at an all-time high of 118 dollars CBA are benefiting from a greater level of efficiency driven by artificial intelligence, and this is being rapidly copied by other banks in the sector.

ASX CBA Share price (Source: ASX)

ASX and the Number of Listed Companies

The number of companies listed on the ASX has declined over the past few years.  In part due to the volatility and compliance issues of being a listed vehicle with external shareholders.  In many cases companies are being bought by venture capital and private equity investors and staying private where there is a lower level of disclosure and no requirements to report regularly to the market.  The practical effect of this is that with less listed companies to invest in, there is a supply-based issue.  This, in part has increased the value of listed companies, particularly funded by asset allocation for mandated superannuation funds.

ASX Total Number of Listed Companies last 12 months (Source: www.ceicdata.com and ASX)

The rise of Artificial Intelligence

Not without ethical risks the effective use of artificial intelligence should really transform our lives in a similar fashion to the advent of the personal computer some 20 years ago. It makes sense therefore to invest in companies such as NVIDIA who dominate this market and indeed, we now have six companies on the US NASDAQ who individually are larger than the entire Australian stock market. These companies have significant pricing power including very strong advertising revenue which is really harvesting your personal data to third parties.

Clearly this is open to abuse and there have been very substantial fines levied on both Apple and Google in recent times for abusing their market position. As global businesses they tend to see this as a cost of trade and there is a real risk that clients remain misinformed of the real danger of their information being passed on to third parties without their permission.

Immigration and Housing

The local property market remains very strong reflecting the effect of a large amount of immigration without adequate housing. This has increased the cost of renting particularly in the cities which is in itself inflationary.  Much of the CPI data should be interpreted carefully as it really reflects a country effectively over trading by having 2 million new participants without adequate infrastructure to support them. You would expect this to even out over time and that the private sector will begin to build new dwellings to meet this demand but there is a great need for all levels of government to work in tandem to make this approval process far more efficient.

Annual Change Rental Prices(Source: CoreLogic)

Internally the business remains busy as we seek to refinance fixed loans into the best variable rates we can find while also locking in annuity and term deposit rates at the top of the market with an expectation that these rates will decline later in the year. Generally, it has been a good time for investing and return so far for the year have been exceptionally strong and unlikely to be repeated in the future.

As always, we need to retain our discipline and accept that markets do vary over time and that we are still recovering from the incredible effect of the COVID virus effectively closing world economies for the best part of two years. Much of the supply demand mismatch is a function of this and like a seesaw it should balance out again over time.

We very much thank you, welcome your referrals, and look forward to being of service to you as the year progresses.

Yours sincerely

Tony and Fiona

Posted by Dr Tony Virtue, Principal


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