SWU Online Invest IC Portfolio Updates – July

Overview: Please see the SWU Online Invest IC Portfolio Updates – July 2023: Asian Allstars

One key headline data point that was released over the month was Chinese 2Q GDP growth of 6.3%. This was lower than expected (but high in absolute terms because it was coming off a low base in Q2 2022 when the economy was locked down). In saying this, the government remains confident in achieving their GDP growth target of at least 5% for CY2023. It serves as more of a floor rather than a target.

Back in Australia, RBA rate rises have slowed with a pause in July. There will be a change of the RBA governor to Michelle Bullock, after Governor Lowe ends his term in September and the market perceives her as more dovish. As a result, forecasts suggest a shift from the initial expectation of two more interest rate increases to a single increase before hikes end in this current cycle. This will also be predicated on macro data with a clear focus on seeing inflation fall further. The change of governor can also be seen as a new face but with policy stance unchanged as she herself has been working at the RBA for decades.

Globally, interest rate hikes are nearing their end. It is likely that rates will begin to decrease next year, particularly if a recession occurs or is already underway. However, investors should expect the magnitude of rates decreases won’t be like the last decade as the era of free money is clearly over. Modest decreases should be expected to ensure high inflation doesn’t reappear (which serves as a systemic risk to the broad economy longer term if not kept under control).

Recession risk remains a headwind on the horizon and regardless of whether it is a soft landing or a severe recession, equity markets tend to rebound before the end of the downturn. While this sounds logical, the reality is that you don’t know when the recession started or ended until its already happened. Rest assured – the IC (Investment Committee) never attempts to time the market but instead adjusts the portfolio based on identifying sensible risks and opportunities, particularly when there are readily
available.

Portfolio Update

The IC has decided to maintain the portfolio.

One of the reasons for the lower relative performance is due to weaker than expected growth in China, and the funds in the portfolio not being exposed to AI or SOE reform.