Market review
Global equities rebounded in the June quarter, as US economic data remained resilient despite major central banks continuing to tighten monetary policy in response to persistently high inflation. The MSCI World ex Australia (unhedged) Index delivered a gain of 7.6% for the quarter.
In the US, share markets were stronger, despite brewing concerns on the likelihood of recession. Resolution of the debt ceiling occurred relatively seamlessly, and this aided sentiment. The S&P 500 experienced an 8.7% quarterly surge, largely driven by a strong performance for the tech-heavy Nasdaq Composite Index. Inflation moderated, and the US Federal Reserve raised interest rates in May while also signalling further rises in the coming months.
In the UK, persistent inflation - still uncomfortably high at 8.7% in May – remained a key watchpoint for the Bank of England. In contrast, headline inflation in the Euro area continued to decline, falling to 5.5% in June 2023.
In Australia, share market returns were moderate, with the ASX 200 Accumulation Index returning 1%. In June, the Reserve Bank of Australia took further measures to address high levels of inflation by implementing a policy rate increase of 0.25%, bringing the cash rate to 4.1%. This is the highest level since 2012, having risen from 0.10% in April of 2022.
Looking ahead
Recently released economic data has shown that inflation, while still high, is cooling faster than some had expected, and that growth remains quite robust (at least in the US), despite interest rates continuing to rise. This has increased overall confidence levels of a possible “soft landing” for economies - that is – the prospect that central banks will be able to raise interest rates by just enough to slow inflation to desired levels, without resulting in the collateral damage of widespread job losses.
But while share markets have welcomed this renewed optimism, we remain cautious on the market outlook for several reasons. Firstly, there remains a long way to go to ensure inflation returns to the pre-defined target levels of central banks. Secondly, we know from history that changes to interest rates take a while to filter though the economy, and so we’re unlikely to have felt the full impact of the rate increases just yet (and there are still one or two rate hikes to come).
Plus, with global share markets up more than 20% since October 2022, they may already be factoring in that “soft-landing” outcome we mentioned earlier. Not only does that mean there may not be any more to gain should that soft-landing scenario play out, it potentially leaves market indexes vulnerable to any negative surprises.
Further, if central banks are inclined to leave interest rates higher and for longer, it won’t necessarily be an environment that’s positive for shares and other risky investments.
We also remain mindful of the mixed track record of central banks over the past several years and the impact of an increasingly complex and interlinked global economy.
With so much still to play out in this cycle, we remain focused on ensuring sufficient diversification in the Fund’s investment portfolio so that we can continue to deliver robust returns in a wide range of scenarios. We’re also ensuring we have ample liquidity in the Fund to be able to adapt our investment strategy as circumstances continue to evolve.
We’re here to help
If you’d like further information about how your investments have performed, or if you’ve got any queries about your Catholic Super account, you can contact us online at any time, or give our team a call on 1300 655 002, Monday to Friday 8:30am to 6:00pm AET.
