March saw the Australian share market outperform most global markets on the back of strength in Banks and Resources companies which are the largest on the market. Resource stocks were up 10.2% and the banking sector was up 10%. The biggest moves in the resource sector were seen from Fortescue Metals, South32 and Independence Group. The moves in resources are on the back of a fall in supply of metals that Russia and the Ukraine usually supply to the world. While this is a shorter term reason, the strength of the global economy is driving demand for commodities. If you use current prices when valuing resource companies, earnings upgrades will continue which should drive resource company prices higher.

Australia is a beneficiary of the demand for commodities, and we expect the Australian market to continue to outperform less resource focused markets in the medium term. Our expectation is that demand for commodities will push up the Australian Dollar (rose 3.5% in March but is down 1.4% over 12 months). The strength in commodities flows through to the broader economy with the government forecasting a positive outlook in the budget released during the month.

The Technology sector was the best performing sector for the month after a difficult start to the year. Square (formerly Afterpay) was the best performing stock rising 19.3% after reporting strong earnings growth, Wisetec was up 17.3% and Computershare up 14%. The worst performing sector was AREITs which were up 1.5% for the month due to the rising bond yields. This is a short-term adjustment with the strength of the economy to drive rents higher in the future.

Turning to property, residential rents are recovering fast. The vacancy rates in residential property around the country is being reported at the lowest level on record, which is leading and will continue to lead to rent increases in the future. Rent increases lag due to rental agreements rolling over, it is important that you review your rent when your lease is up and seek advice from The Hopkins Group property team to make sure you are getting rents appropriate for your property.

There is an undersupply of property in Australia which will only be exasperated by the return of immigration. If you are in the market for investment property, we have a range of options to find a property that will meet your needs. We have the skill in house to advise you on buying established property through our buyers advocacy team and buying new property which requires careful consideration due to the rising prices and the quality of the development team.

Global equity markets were higher with Latin America up 6.6% and Japan up 5%. The worst performing global indices were China down 7.7% and Emerging markets down 2.2%. China has shut down major cities to maintain its Zero COVID policy and lower growth forecasts of 5.5%. Emerging markets typically struggle when commodity prices rise as they are net importers of commodities including oil, which has risen significantly in recent months. The NASDAQ rose 3.5%, recovering some of its losses over the last couple of months.

Bond yields continue to rise across the global with inflation driving expectations for higher interest rates. If inflation works its way into peoples expectations, inflation will be a permanent feature of our economic future. Wages has the biggest impact on inflation and we are starting to see wage increases globally. The bond market gave a signal that there may be a recession in 12 months time when the 3 year US bond yield was higher than the 10 year bond yield. This is not a fool proof indicator but could highlight a long term slowing of the US economy or to my mind, could indicate that inflation is going to short lived and that the COVID stimulus will work through the economy and inflation will fall back to levels acceptable to central banks.