The market has risen approximately 0.6% in March, extending the move up from the lows in November 2023 to above 14% (excl. dividends). The Australian market has risen approximately 8% during the past 12 months.

ASX 200 Index (12 months)

This compares for the 27% from the US S&P 500 index

The US market has a far greater exposure to mega-cap technology companies, including those exposed to artificial intelligence. Businesses associated with artificial intelligence have performed exceedingly well over the past 12 months, far outpacing the rest of the market as per the chart below:

MSCI World Index December 31, 2022 to December 31,2023

The ASX has performed well due to many factors, including the bond market and economists predicting a drop in interest rates. These forecasts are usually based on the economy weakening, which does not appear to be the case. The unemployment rate in Australia has dropped to 3.7%, with 116,000 new jobs being created during the month. Immigration is also booming at the fastest rate in over 50 years with 550,000 (+2.5%) people arriving in the past 12 months, this number is accelerating.

The ASX (excl. resources) is now trading at 18.5x forward earnings forecasts, 40% above its long-term average of 13.5x. Companies appear better at managing volatility in earnings than in the past, with a more conservative approach than has been seen in other cycles. Overall, corporations are paying investors (owners) high dividends or buying back stock, rather than making acquisitions.

As always, it is important to consider the asset allocation within your portfolio to ensure risk parameters are appropriate.

Alex Leyland

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