It’s been another big year. In January the RBA rate was 0.25% (40+ year low) fueling asset price growth of everything incl 2nd hand cars. We had lockdowns, the AO Tennis controversy and multiple natural disasters making it near impossible to source quality tradespeople. We had extraordinary COVID Gov spending including payments to casual workers greater than their actual earnings. Workers in all industries seemingly ‘disappeared’. A new war & Russian sanctions immediately triggered massive $ increases for oil, gas, fertilizer & grain pushing inflation to levels not seen since 70’s. Synchronized worldwide interest rate rises followed. We’re now up to 8 consecutive rises (RBA rate 3.10%) causing conservative portfolios with bonds to suffer negative returns not seen since 1994, >50% fall in USA technology companies, large Aust home builders going bust, a big fall in the AUD/USD to low 60c, a major crypto currency crash (despite rhetoric it’s ‘the’ inflation hedge). We saw a new Federal Government elected on wages & renewable energy issues. Meanwhile, Aust coal and resources (30% of the ASX) single handily delivered the golden goose to Qld State and Federal Governments posting massive (unexpected) budget surpluses. Amongst this wave of economic turmoil client portfolio returns have been robust and generally better than most expected.
So…what lies ahead in 2023?
More (normal) volatility. Many Aust borrowers will feel the pinch when cheap (2%) COVID fixed home loans revert to variable rates of 5-6% and this is priced into markets. So as usual, it will be new & unexpected events which will cause volatility. The big positive is cash assets now return up to >4% for 1 year term deposits on offer. In time this will increase returns of all portfolios albeit with higher inflation. Many market participants welcome the current adjustment as long overdue to restore equilibrium after an extraordinary period of stimulus & ‘cheap’ money. As usual we very much welcome your call and in the meantime, we wish your family a wonderful festive season and we look forward to seeing you in 2023.