In the six months since we provided our wrap of Australia’s reporting season “Paying the Piper”, we have really seen the significant Reserve Bank of Australia (RBA) rate rises and inflation impacts that were just beginning to show.
We are now much further through the cycle and “looking over the edge” of a potential earnings recession, GDP recession, or both. At the time of writing, we are also absorbing news of the collapse of Silicon Valley Bank (SVB) in the US which has added further complexity into an already uncertain outlook.
Our analysis and one-on-one meetings with company management over February and March have highlighted that the consumer was still showing resilience in spending and company revenues remain strong. However, margin pressures are beginning to bite at earnings growth as sales begin to slow and costs continue to rise. And this is before the likely future interest rate rises and mortgage cliff.
As the world continues to normalise to higher rates and long-term inflation expectations, the market thematic continues to play towards an ongoing attractive environment for the Value style.
It is as important as ever for Investors to be discerning in their stock picking, focussing on companies that can grow earnings and dividends in this environment and not be exposed to valuation risk.
Our bi-annual reporting season paper will cover the following in finer detail:
- Our top-down analytical and aggregated review of the reporting season’s results for S&P/ASX 200 stocks.
- A deeper dive into the issues and themes that are driving earning results - based on the 100+ meetings with company management teams undertaken by the MCA investment team over the period.
- The big picture outlook for Australian equities, and how our views are reflected in our portfolio positioning across Value, Sustainable and Income styles.
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The information contained in this document has been compiled with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this document for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice.
The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.
Past performance is not a guide to future returns.
The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
Some of the information provided in this document has been compiled using data from a representative account. This account has been chosen on the basis it is an existing account managed by Martin Currie, within the strategy referred to in this document. Representative accounts for each strategy have been chosen on the basis that they are the longest running account for the strategy. This data has been provided as an illustration only, the figures should not be relied upon as an indication of future performance. The data provided for this account may be different to other accounts following the same strategy. The information should not be considered as comprehensive and additional information and disclosure should be sought.
The information provided should not be considered a recommendation to purchase or sell any particular strategy / fund / security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.
It is not known whether the stocks mentioned will feature in any future portfolios managed by Martin Currie. Any stock examples will represent a small part of a portfolio and are used purely to demonstrate our investment style.
Risk warnings – Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this document.
- Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
- This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
- Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.
- The strategies may invest in derivatives (index futures) to obtain, increase or reduce exposure to underlying assets. The use of derivatives may restrict potential gains and may result in greater fluctuations of returns for the portfolio. Certain types of derivatives may become difficult to purchase or sell in such market conditions.
- Income strategy charges are deducted from capital. Because of this, the level of income may be higher but the growth potential of the capital value of the investment may be reduced.