Investment Year In Review – November 2024

Pitcher Partners Investment Services (Melbourne) | The information in this article is current as at 30 November 2024 

The 2024 calendar year is shaping up as another very strong return for investors, with attractive gains generated across equity and fixed income markets over the year.

Global economy

Inflationary pressures have generally eased across the major developed market economies year to date.  Whilst some pricing pressures remain more stubborn than others, several major central banks, including the European Central Bank, Bank of England and the Federal Reserve, have now begun the process of removing their restrictive policy settings by cutting interest rates.  

The Australian economy continues to remain an outlier though. Despite a slight softening in their messaging at their December meeting, the RBA is still concerned that ‘core’ inflation is not yet on a sustainable downward trajectory towards its target of 2-3%. Higher levels of Government spending are partly responsible for this outcome and the risk still remains that interest rates could stay higher for longer. This is despite Australia posting its lowest annual GDP growth rate in 32 years (ex-pandemic) at the end of September.  

Offshore, the global economy generally held up better than what the more bearish expectations represented at the beginning of the year. The Euro-Zone have consistently flirted with recession over the course of the year but mediocre growth was still a better outcome than many expected. The US remains on track to deliver an annualised growth rate of ~2% by year end, despite a slowdown in its labour market and housing sector. Japan ended its near 17yr policy of yield curve control and negative interest rates in March, whilst also entering a technical recession during the year, hampered by ongoing weakness in the Yen.  

China’s property market woes have continued to weigh on consumer sentiment and broader activity levels, which will likely see the economy undershoot the Government’s 5% growth target at year end. Over the course of the year, authorities have announced a raft of stimulus measures to try and reinvigorate its economy, but they are yet to deliver the right mix of incentives to rebalance its economy effectively.    

The outcome and theatre of the US Presidential election dominated headlines throughout the year. The Republican clean sweep pushed the price of Bitcoin to over US$100,000, saw equity markets rally higher in anticipation of lower taxes, Government cost savings and deregulation. In contrast, bond markets adopted a different perspective and expressed concerns around Trump’s higher spending policy agenda and the implications for inflation and the Government’s ability to address its huge (and growing) US$36.4tn fiscal deficit. Whilst Trump won’t be officially sworn in as President until early January, he has been busy already with respect to announcing several planned tariff and other policy announcements to date.   

Financial markets

Australian equities (S&P/ASX 200 Acc Index) delivered a robust +15.1% return CYTD.  The bulk of the gains have been heavily driven by multiple expansion as opposed to superior fundamentals (e.g. earnings growth).  Technology, banks and consumer discretionary were the standout performers from a sector perspective.  Resources, energy and consumer staples were the weakest, with the former impacted by declining commodity and oil prices. Small and micro caps (ex-resources) enjoyed a rebound in returns after a lacklustre last few years.    

Global equities (+28% unhedged) provided strong gains across the board, led by the US market which continued to post new highs throughout the year, driven predominantly by the technology sector. All things AI related were in strong demand – semiconductors, data centres and other related infrastructure produced some stellar returns for related stocks over the year. Nvidia’s 1yr return of approximately +180% pushed its market capitalisation to US$3.3tn, surpassing the size of the entire UK sharemarket!     

Elsewhere, Chinese equities rallied strongly on the back of ongoing stimulus announcements, while the rest of Asia and emerging markets produced single digit to mid-teen advances, including India and Japan.    

Listed property markets enjoyed a very strong performance CYTD. Australian REITS (A-REITS) enjoyed one of its largest returns on record, underpinned by the domineering influence of Goodman Group (~42% of the index). Its share price rose ~50% due to its development pipeline of data centres. Global REITS (G-REITS) also rallied as investors became more confident around the outlook for fundamentals and valuations. In the unlisted property sector, the pressure within some segments of the US commercial real estate markets appear to be easing. Locally, transaction volumes across several sectors are increasing, which we expect will result in higher asset valuations over time. Office assets, however, remain under pressure due to ongoing flexible working practices.    

Bond markets are on track to generate positive returns for investors over 2025, despite exhibiting considerable volatility intra-year as the market’s expectations around inflation chopped and changed over the period. The Australian cash rate remained at 4.35%, however the 10yr Australian Government bond yield moved regularly within a range between 3.7% to 4.7% over the course of the year.   

Offshore, we witnessed a similar level of bond volatility but still expect to see a mid to high single digit return from our benchmark by year end. Bonds rallied significantly while the Federal Reserve signalled its intentions to cut rates in September. Most recently, Trump’s victory has raised concerns over the re-emergence of inflation, which has partially tempered the market’s expectation for the number of future rate cuts and helped push the U.S 10yr Bond Yield back over 4%.  

Credit was a profitable area for investors, with spreads across many investment grade and high yield markets at or close to decade lows. Private credit markets, such as syndicated loans, asset backed and direct lending, also provided attractive sources of income for investors.  

Within the Alternatives asset class, the venture capital and private equity sectors were hindered by an unfavourable exit environment and generally tougher conditions to raise capital, instead favouring liquidity providers such as secondary funds or opportunistic capital solutions. In the liquid hedge fund space, equity long short strategies generally fared better than global macro and trend-based managers. In commodity markets, we saw considerable price volatility across energy and base metals, while Gold was the standout, having rallied over 30% in US$ terms.  

The $A declined against the $US to reach $0.65 by the end of November, having hit a 12-month high of $0.69 just two months prior. 

Thank you

Firstly, we would like to express our sincere gratitude for your ongoing support and faith placed in us to help you achieve your financial objectives.   

A quick reminder that our offices will be closed from 12pm, Friday 20th December.  We will have a skeleton crew on call for any urgent requests over the holiday season, with our office re-opening on 6th January 2025.  

Lastly, we wish you, your friends and family a very safe and enjoyable festive period and look forward to working for you all in 2025.    

Source: Morningstar, IRESS