Insights
Market Review for May 24
Update on markets for May 2024 from our investment team
Global exposures performed better than local markets during May. The US stock market climbed by 5% while the Australian market was only up 0.5% and the New Zealand market was down 0.6%.
Global Markets
Both the US and European markets hit new record highs during May, but this masked underlying volatility as the US wrapped up their quarterly reporting period.
The big-tech sector stood out again, arguably the most important stock in the world right now - Nvidia, spiked after posting strong results and a better-than-expected outlook for the year ahead. The stock is now up 141% since 1 January, with a company market value of US 2.86 trillion as demand for AI continues.
This is in stark contrast to sectors more exposed to consumer sales like Tesla who is down 30% this year-to-date due to slowing car sales. With a wide dispersion of returns across stocks and sectors at an all-time high, it's a great time for active managers to stand out having the ability to choose individual stocks instead of investing passively.
US inflation has slowed down slightly since the previous quarter and importantly, core inflation (which excludes food and energy) rose in line with the median estimate which is its slowest pace since April 2021. However, it didn’t help inflation concerns when Biden announced new tariffs against China, in a likely attempt to close the gap on his Presidential campaign with Trump.
Overall as we near mid-2024, recent economic data suggests a slight slowdown in the US economy but a resilient global economy despite rapid rate hikes in 2022 and 2023. We are however, observing some delayed effects of those higher interest rates.
Globally, more voters than ever in history will head to the polls during 2024. Approximately 64 countries (plus the European Union)—representing about 49% of the people in the world. The results of which, for many, will prove consequential for years to come(1) and given the surprises we have experienced in the US previously, it’s hard to imagine there won’t be at least some economic shock over the next couple of years.
New Zealand Market
There was a lot to digest for investors locally during May when the NZ Reserve Bank delivered a clear message that it’s still considering raising rates. While they kept the Official Cash Rate at 5.5%, they noted strong inflationary pressures in the country, suggesting a higher chance of a rate hike compared to their February statement. We believe rates will stay at their current levels for a longer period.
The recent Budget announcement saw limited NZ stock exchange impacts, instead focusing on tax relief, investing in public services, and ensuring fiscal responsibility to support economic recovery.
The impact of higher interest rates was very apparent with household names The Warehouse and Fletcher Building reporting another challenging quarter and weakness evident across the board.
However, the renewable energy market got a lift as Tiwai point negotiations saw Rio Tinto commit to the smelter for another 20 years. Meridian chief executive Neal Barclay said the deal was further proof large industrial businesses could use New Zealand’s renewable energy advantage and create low-carbon sustainable products, high value jobs and export dollars for New Zealand (2).
Infratil, our largest New Zealand holding, who owns renewables assets, announced that its data centre business is going from strength to strength, with surging demand from AI in particular.
And finally, Kiwi Property Group announced the conditional sale of Vero Centre for $458m bringing new life to the commercial property market. This is a big deal and interesting that the asset has been sold at close to KPG’s carrying valuation, which has positive read through for other A-grade commercial property assets.
Australian Market
Across that Tasman, the Australian Budget announced AUD$24 billion of new policy including cost-of-living support, on top of AUD$22 billion Stage 3 tax cuts and recent State stimulus. Together, these provide an AUD$29 billion boost to consumers in 2025 that’s worth 1.9% of disposable income. However, this may create broader inflation.
The budget favoured the consumer sector, green transition, and critical minerals. Australia’s critical minerals industry is a major part of the government’s push to capitalise on the worldwide green energy revolution. Major powers including the US are keen to use Australian battery minerals as part of an effort to break reliance on Chinese supply for the materials, which are used in the production of solar panels, electric vehicles and lithium-ion batteries (3).
You can read more on the future of batter power, its ethics and economics and how we invest here.
Performance
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