The swings in the market continued during the month, with a net flat performance in equities during the period. This is, perhaps, another reason for taking a step back from day-to-day share price movements and focus on the long-term. Much angst can be avoided along with emotions that negatively impact rational investing.
Of note, the domestic banks performed particularly well during the month, as the rise in interest rates on lending has not been matched by increases in deposit rates, leading to improved margins.
Central banks around the world appear to be more circumspect with the speed and size of interest rate rises. The RBA’s decision to increase rates by only 0.25% during the month may become a precursor for milder rate movements elsewhere. Any news that rate rises may moderate has seen the market rise sharply, and vice-versa, demonstrating the importance of central bank policy to market action. While in the near-term equity markets may bounce around based upon the prospects of a ‘pivot’ in central bank policy, investors’ attention is better placed focusing on the ‘pivot’ in inflation itself. Persistently high inflation is, after all, the disease to be treated.
In the UK, the liquidity of some pension schemes came into question, with future withdrawals potentially not being matched with liquid assets. Should there be an urgency to address any unfunded liabilities, this will have ramifications on assets prices globally, especially the pricing of unlisted assets.
This is important in the Australian context as a large portion of superannuation assets are unlisted. The pricing of these assets can be opaque, especially when compared to listed peers. For example, some listed REITS (Real Estate Investment Trusts) trade at a 30% discount to NTA (Net Tangible Assets), as determined by independent valuers. There is a disconnect between the listed (transparent) price and the unlisted equivalent.
Alex Leyland