Quarterly economic update: July - September 2024
Wondering how the economy and financial markets fared last quarter? Our latest update covers the key trends you need to know. Discover what’s shaping investment markets and what it means for you.
The September quarter saw healthy returns from most key markets, most notably listed property and Australian shares.
Global shares achieved strong gains over the quarter despite concerns over the conflicts in the Middle East and Ukraine. Optimism on ‘Artificial Intelligence’ (AI) prospects, milder inflation outcomes, and both the American and European central banks cutting interest rates were the key drivers for higher global share prices.
Chinese shares made an extraordinary recovery in September which allowed China’s MSCI index to deliver an astonishing 22.2% quarterly return in local currency terms. Finally, Chinese central banks responded to slow economic activity and weak property markets by assertively cutting interest rates. This in turn helped boost Australian resource stocks, on the anticipation of increase demand from China.
Escalating conflict in the Middle East and Ukraine remain key concerns but lower interest rates for now are offsetting these geo-political risks.
Australian Events
Australian shares delivered a strong quarterly return of 7.8%. The Information Technology sector made a very strong quarterly return of 15.3% on AI optimism. Real Estate Investment Trusts (REITS) were next best with a 14.5% quarterly return given that lower global interest rates raised hopes for eventual interest rate cuts in Australia.
Australia’s economy continued to display subdued economic activity with sluggish consumer spending and weak housing construction. The negative impact of high consumer prices, mortgage interest rates and rents continued to squeeze household budgets. However, lower inflation results for August and September has generated optimism that the Reserve Bank of Australia will become more open to lowering interest rates in early 2025.
Economic and Investment Outlook
Easing inflation pressures, central banks cutting rates, China ramping up policy stimulus and prospects for stronger growth in 2025-26 should make for reasonable investment returns over the next 6-12 months. However, with a high risk of recession, poor valuations and significant geopolitical risks particularly around the Middle East and US election, the next 12 months are likely to be more constrained and bumpy compared to 2023-24.
Unlisted commercial property returns have had a dramatic bounce back over the last 12 months, but may struggle due to ongoing reduced office space demand with working from home trends.
Australian home prices are likely to see more constrained gains over the next 12 months as the supply shortfall remains, but still high interest rates constrain demand and unemployment rises. Lower interest rates should help the market next year though.
So expecting volatility, as always we advocate a reasonable degree of diversification, with wealth accumulators taking advantage of buying opportunities as they arise, and retirees ensuring they are positioned to be patient with the growth portion of their portfolios.
| Asset Class Summary – 30 Sept 2024 | 1 Year % Total Return |
|---|---|
| Australian Shares | 21.7 |
| Global Shares (hedged) | 28.5 |
| Global Shares (unhedged) | 22.6 |
| Australian Property Securities | 45.9 |
| Australian Bonds | 7.1 |
| Global Bonds (hedged) | 9.1 |
| Cash | 4.4 |
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