Markets Rebound in Financial Year 2023
After the rough ride of FY22, FY23 (ending last month) turned out to be a good one for investors as shares rebounded thanks to falling inflation and hopes that interest rates are near the top. Those with well diversified portfolios of shares and fixed income were in a good position to benefit from both assets’ advances, a welcome turn from last year’s broad declines. Balanced fund portfolios on average received returns in excess of 10% for the year.
Summary of market returns
After falling more than 10% in 2021-22, the Australian share market as measured by the S&P/ASX 300 Index (which tracks the share prices of the 300 biggest companies listed on the Australian Securities Exchange) regained almost all of its lost ground.
From 1 July 2022 to 30 June 2023 the S&P/ASX 300 Index rose by just under 9.4%. It was an even stronger 12-month period for investors on the United States share markets. The S&P 500 Index, which tracks the top 500 companies there, fell more than 11% in 2021-22. But between 1 July 2022 and 30 June 2023 it completely erased that loss by rebounding around 17.7%.
Meanwhile, after recording a fall of more than 10% in financial year 2021-22, the Australian fixed interest (bond) market – measured by the Bloomberg AusBond Composite 0+ Year Index – ended the 2022-23 financial year with a positive return of more than 1.2%.
That sharp turnaround in nominal, non-inflation-adjusted, terms largely reflects the impact of rising interest rates, which fuelled strong investor inflows into Australian and international bonds.
Australian real estate investment trusts benefitted from better valuations and a stabilisation in bond yields, but global REITs remained under pressure.
Unlisted commercial property returns look to have been negative as the lagged negative impact of higher bond yields and reduced space demand for office and retail property weighed on capital values.
Australian residential property prices fell 5.3%, reflecting a sharp fall in the second half of 2022 as higher mortgage rates hit but saw some recovery in the last 4 months as immigration rebounded and supply fell.
Five financial years of returns
Some lessons from 2022-23
The big lesson of 2021-22 was that inflation was not dead, just resting, and can raise its head to cause mayhem when the circumstances are right. But there were two big lessons over the last year. The first was that just as easy money was a major contributor to inflation in 2021-22 the move to tight money looks to be working to bring inflation back under control again albeit there is a way to go yet. The second was yet another reminder of just how hard it is to time markets. Just when everyone was most gloomy about inflation and interest rates, share markets rebounded.
Things for investors to keep in mind
Of course, short term forecasting and market timing is fraught with difficulty and it’s best to stick to sound long term investment principles. Several things are always worth keeping in mind:
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