Current state of economy and markets 

On Wednesday June 26, 2024, Hewison Private Wealth hosted a Mid-Year Investor Forum for clients at Half Acre in South Melbourne. On a dark and cold Winter’s evening Martin Lakos, a Division Director and spokesperson for Macquarie Bank, shared Macquarie’s view of the global and Australian economy and financial markets, with the key theme of his presentation being light at the end of the tunnel. The evening was expertly guided by MC Patrick Durkin, Melbourne Bureau Chief of Australian Financial Review & Deputy Editor of AFR Boss and wrapped up with a panel discussion that included Martin Lakos, along with Rob Rayner, CEO of RF Corval and Hewison Private Wealth’s Managing Director, Andrew Hewison. 

To set the scene Martin highlighted that despite the challenges of high inflation, interest rates, geopolitical risks, and Covid-19, the global economy is showing resilience and some signs of upward momentum, which may accelerate if central banks start cutting rates. With inflation figures released on the day of the forum the RBA’s possible response to this was a topic of discussion, including whether rates would indeed be raised before any cuts would be considered in 2025. Martin commented that Macquarie had projected that the Reserve Bank of Australia could start cutting rates in February 2025. 

When defining the current state of the economy, Martin highlighted the role of terms of trade and commodity prices in supporting the Australian economy, especially the iron ore and energy sectors, which have boosted corporate profits, tax revenues, and investment. Martin commented on the strength of the labour market and wages growth, which have helped households cope with the cost-of-living pressures and high mortgage rates. Notwithstanding those pressures will continue to persist, acknowledging the slowdown in consumer and business confidence and activity, as well as the divergence in the performance of different sectors and regions, especially the impact of Covid-19 on Victoria. 

Martin discussed the risks and opportunities in the financial markets, especially the US stock market, which has been hitting new highs driven by tech utilities, such as Microsoft, Amazon, and Alphabet. He also touched on the property market, both residential and commercial, and the factors affecting supply and demand, such as population growth, immigration, land tax, and vacancy rates. 

Commenting on the upcoming elections globally that will see over four billion people vote in the next 12 months, including in the US and Australia, and the potential policy changes that could affect the economic and investment outlook, pending those election results. He mentioned some of the emerging economies, such as India and Indonesia, and their prospects for growth and trade with Australia. 

Implications for investors and businesses 

Once the scene was set it was time to digest some of the data and what the implications and considerations for investors and businesses could be as we move towards 2025: 

• Be cautiously optimistic about the economic outlook for 2025, as there are some positive indicators and drivers of growth, but also some uncertainties and risks that could cause volatility and disruption. 

• Seek professional advice that focuses on portfolio diversification across  multiple asset classes, allowing for opportunities to be capitalised on and risks to be mitigated.  

• Monitor the inflation and interest rate movements, as they will have a significant impact on the cost of funding, the profitability, and the valuation of assets. 

• Be aware of the political and geopolitical developments, and their potential implications for the policy environment, trade relations, and the security situation. 

• As hard as it can be to hear, be prepared for a possible recession at some point in the future, as it is a natural part of the economic cycle and have a contingency plan to deal with the challenges and opportunities that may arise. 

What the panellists had to say

The panellists shared their views on the global and Australian economic outlook, the risks and opportunities for investors and businesses, and the impact of inflation, interest rates, and political developments on various sectors and asset classes. 

Martin Lakos from Macquarie continued to emphasise his optimism, despite the challenges posed by the Covid pandemic, geopolitical conflicts, inflation pressures, and interest rate uncertainty. He said that the global economy was resilient and showing some signs of upward momentum, especially in the US, where the yield curve was normalising, and the recession risk was reducing. He also said that China was stimulating its economy to overcome the slowdown caused by the property market collapse and the Covid outbreaks. 

Martin also highlighted the strengths of the Australian economy, such as the strong labour market, high commodity prices, robust business investment, and the healthy fiscal position. He said that the Reserve Bank of Australia was likely to delay cutting interest rates until inflation came down to its target range of 2-3%. He also said that the US election was too close to call and could create volatility in the markets in November. 

Rob Rayner from RF Corval gave his perspective on the property market, focusing on the commercial, industrial, healthcare, and agricultural segments. He said that he was cautiously optimistic about buying assets in these sectors, as they were cheaper than two or three years ago and had strong demand drivers. He said that RF Corval was selective about which markets and locations they invested in, and they were mindful of the cost of debt and the tax changes in Victoria.  

Considering the information presented and the panel discussion Hewison Private Wealth Managing Director, Andrew Hewison, gave his advice to investors on how to navigate what could be viewed as uncertain and volatile times.  He elaborated on the investment philosophy and history of Hewison Private Wealth, developed over 40 years, starting from the aftermath of the 1987 stock market crash, when the firm’s founder realised the importance of having control and flexibility over investments. He said that this philosophy enabled them to deal with the uncertainty and volatility in the current environment, while relying on the expertise of their internal investment committee, industry experts, and fund managers, who could identify opportunities in various markets and sectors around the world for their clients and that we are not in the business of trying to time the market. He said that diversification, rebalancing, and seeking professional advice were the best strategies to achieve long-term goals and avoid emotional investment decisions that could be detrimental. 

Andrew also mentioned the upcoming tax changes for superannuation funds with balances over $3 million, and the strategies that were being developed to help clients minimise the impact of this legislation. Andrew also expressed his concern about the complexity and lack of trust in the superannuation system, which he said was eroding confidence and affecting retirement planning. 

The Mid-Year Investor Forum showcased the value of financial advice, and the importance of the partnership clients have with their Adviser. The presentation and panel discussion exhibited how complex and dynamic the investment environment can be, whilst providing invaluable insights and education on the levers that impact the economy and markets. Hewison Private Wealth Advisers help clients to navigate the uncertainty and volatility, and to align their investment decisions with their long-term goals and objectives. Our Advisers specialise in providing tailored solutions and strategies for each individual client’s specific needs, such as the tax changes for superannuation funds, and how to help clients optimise their outcomes and avoid costly mistakes. Advice offers peace of mind and confidence, as investors/clients can rely on the expertise and experience of professionals who are dedicated to their best interests. Always. 

For a discussion about your personal circumstances please reach out to us HERE or via email info@hewison.com.au 

Watch the Forum highlights here: