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Market Summary - 30 June 2022

Key points

  • Economies are entering a period of higher inflation and higher interest rates

  • Slower economic growth is likely

  • Quality asset values will recover in time

  • Unless your personal circumstances change, long term portfolios generally do not require adjustments (e.g. selling shares while prices are down).

 

The ASX200 (an index of the largest 200 companies on the Australian Stock Exchange) closed the financial year with a loss of 10.2%, the third negative return in the past decade. In 2021 it had an impressive 24% gain and a very moderate 1.18% in the 2020 financial year.


The majority of this decline occurred in June 2022 as markets reacted to the central bank’s aggressive take on monetary policy (interest rates) and the flow on effect it will have on consumers. As the repayments for mortgages increase, households will have less income to spend on other items. Compounding this effect on household income is the increased price of oil and energy. Economic strength relies on consumer spending so as this decreases the possibility of negative growth in the economy (a recession) becomes a possibility.


Rising interest rates – who wins?

Using history to review which sectors traditionally do well in a rising interest rate environment, the banks were expected to outperform. However, they experienced a drastic rerating in June based on higher than expected inflation figures being reported in the US. The financial sector dropped 11% for the financial year to 30 June 2022.


Worst performing sectors for the year

  • Information Technology -39%

  • Consumer Discretionary -23%


Best performing sectors for the year

  • Utilities +29%

  • Energy +25%

ASX200 index performance for the financial year to 30 June 2022


Investing should always be for the long term. By investing through economic cycles, the risk of loss is significantly reduced. The below chart shows the average return over the past 10 years for the ASX200, an average positive return of 9.29%.


10-year total return – price increase and dividend returns


So, while interest rate rises influence share prices and share valuations, they are part of the economic cycle.


If you have a longer-term timeframe for investment, there should be no need to sell or alter your portfolio.



This article contains information only and is not substitute for professional financial services.