Quarter in Review: December 2022

25 January 2023

The December quarter saw the ASX300 Accumulation Index returning 9.1%, driven by a broad risk on rally in markets to end a volatile 2022 year. For the year the return including dividends was -1.8% the worst calendar year return for equities since the GFC.

The key drivers of the market were:

  1. Sector Performance: All sectors delivered positive absolute performance during the quarter, albeit with Resources up 13% vs Industrials only up 7% boosted by the Banks up 11%. The best performing sectors for the quarter were Utilities (+28.0%), Materials (+14.8%), and Property trusts up (+10.4%). The worst performers featured Consumer Staples (+2.1%), Healthcare (+1.9%), and IT (+1.7%).
  2. Economic News: The big news during the quarter was China’s widely anticipated reopening following the 20th National Party Congress and sparks of domestic protests following extended COVID lockdowns. This in conjunction with stimulus injected into the troubled property sector not only drove strength in Chinese market indexes, but also equities with China-linked revenues (eg. Australian Miners and export traders).
  3. Rates and Yields: In mid-December, the Federal Reserve lifted rates by 50bps but officials pencilled in plans to raise the fed-funds rate to a peak level between 5% and 5.5% in 2023 and hold it there until sometime in 2024. Only in September, they anticipated lifting the rate to around 4.6% by the end of 2023. This saw yields end up for the quarter with the US 10-yr bond increased slightly by 5bps to end the quarter at 3.87%; however, there was considerable volatility with a range of 3.4%-4.2%. The RBA lifted rates three times over the quarter to 3.1% and the AUS 10-yr saw relatively higher pressure with yields up 17bps to 4.05%.
  4. Commodities: Iron Ore was up 21% during the quarter, buoyed by news of the China reopening and a reversal of the sharp price declines seen in the September quarter. Interestingly, despite the China reopening, Brent Crude was down 2.3% reflective of global economic bearishness heading into 2023. Gold also hit a bottom in November at US$1620/oz and rallied to over $1800/oz ending the year roughly where it started. Gold benefitted from a weakening dollar, primarily driven by a strengthening Yen as a result of the BOJ adjusting its Yield Curve Control policy in December.
  5. Global Markets: US markets lagged the Australian market in the quarter, with the S&P500 delivering 7.6%; the technology heavy NASDAQ was a notably laggard as it shed -0.8%. On the other hand, the Shanghai Composite outperformed, was up 21.4% as investor sentiment became more constructive after China commenced its first phases of COVID reopening. Overall, the Australian market fared relatively better, largely explained by sector bias with the Australian market heavier geared to Banks and Resources relative to global indices.
  6. Corporate News: Origin Energy received a $18.4bn bid from Brookfield and EIG which became the key driver of the Utilities sector outperformance over the quarter whilst Perpetual was finally able to draw upon Pendal shareholders’ approval to consolidate the two fund managers. The quarter was also riddled with cases of company cyberattacks. Whilst selective in nature (i.e. Optus, Medibank), the inherent risks and ensuing consequences (customer remediation, reputational loss, punished share prices) were showcased on a public stage. With the understanding that all companies are potentially exposed to a potential attack, it forms an increasingly important risk that will likely require increased time, effort and spend to mitigate going forward.

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This material has been prepared by WaveStone Capital Pty Limited (ABN 80 120 179 419 AFSL 331644) (WaveStone). It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Any projections are based on assumptions which we believe are reasonable but are subject to change and should not be relied upon. Past performance is not a reliable indicator of future performance. Neither any particular rate of return nor capital invested are guaranteed.