Australian investors get realistic
A rising Australian dollar and a struggling Consumer Discretionary sector saw the ASX200 accumulation index dip 1.4% in June.
As we enter the new financial year, the markets are characterised by extremely low turnover, even by the usually quiet standards of the northern hemisphere during summer.
The onset of ‘confession’ season has seen some notable earnings downgrades from the Consumer Discretionary sector. Companies like the Reject Shop (-13%), Flight Centre (-11%) and Kathmandu (-8%) bore the brunt of post-Budget frugality with Consumer Staples names affected as well.
Despite these disappointments, these expectations adjustments could bode well for the formal reporting season, with investors’ hopes less likely to be disappointed. We continue to focus on companies that deliver strong free cash flow, that are benefiting from low-capital intensity growth, or are set to do well at this point in the business cycle.
In the corporate world, M&A activity remains hot with deal value totalling $15.8 billion from ASX-listed companies in June alone. Most corporates however continue cost cutting measures, and while signs of further investment are emerging, the growth plans of many smaller companies remain tentative as they await more encouraging conditions.
Global: equities higher, growth lower
The S&P500 index continued to hit new closing highs in June, meaning it has risen for the past six consecutive quarters. In contrast, first quarter US GDP growth hit its greatest low since World War Two in a non-recessionary period.
Although the negative surprise from first quarter GDP growth in the US suggests equities investors may have run ahead of themselves, it may be that the one-off effect of the introduction of Obamacare may have played a significant role in the disappointment result.
In bonds, the global search for yield remains the key, driving bond yields lower across the globe. Investors are turning to higher yielding riskier issuers for income, where BBB issuer bonds are generally outperforming more highly rated issuers.
The expansionary monetary policies of large countries’ central banks remain supportive of these risky assets – for now, but concerns build as significantly large flows continue into these illiquid assets
- domestic and global market performance in June 2014
- how BTIM funds performed, and
- our portfolio managers’ outlooks for the period ahead
Or download BTIM’s Quarterly Fund Manager Commentaries for the June 2014 quarter.