Key events in December 2023
Global share prices made very strong gains in December to end a turbulent year on a positive note, influenced by mild global inflation results and hopes for lower interest rates in 2024. The sharp falls in government and corporate bond yields in December also proved encouraging for investors.
Wall Street made strong gains. US consumer annual inflation came in at 3.1% in November given falling gasoline prices. Employment gains also moderated, suggesting that the US economy was gradually cooling after a strong run. With milder employment and inflation, the US central bank provided positive projections suggesting lower US interest rates in 2024. European share markets also advanced strongly with lower inflation results and hopes for falling interest rates next year. Chinese share markets fell further with continued concerns over weakness in the property sector.
Australian Shares made very strong gains to record its best monthly return in three years. All sectors were positive contributors in December. The Real Estate (11.4%) and Healthcare sector (9.1%) made robust gains with hopes that interest rates are set to fall in 2024. The Resources sector (7.9%) also delivered strong returns given optimism over rising iron ore and gold prices. Information Technology (7.4%) also made healthy gains.
Asset class summary
Asset class returns in Australian dollars – periods to 31 December 2023
CYTD % | 1 month % | 3 months % | 1 year % | 3 years pa % | 5 years pa % | 10 years pa % | |
Australian shares | 12.4% | 7.3% | 8.4% | 12.4% | 9.2% | 10.3% | 7.9% |
Global shares (hedged) | 19.9% | 3.9% | 8.7% | 19.9% | 5.9% | 10.6% | 8.7% |
Global shares (unhedged) | 21.4% | 1.8% | 5.0% | 21.4% | 10.2% | 12.4% | 10.9% |
Emerging markets (unhedged) | 9.2% | 1.0% | 2.0% | 9.2% | -1.1% | 4.3% | 5.5% |
Australian property securities | 16.9% | 11.4% | 16.5% | 16.9% | 5.9% | 6.4% | 9.4% |
Global property securities (hedged) | 7.9% | 8.2% | 12.7% | 7.9% | 1.7% | 1.9% | 4.5% |
Global listed infrastructure (hedged) | -0.8% | 3.3% | 8.5% | -0.8% | 3.5% | 4.9% | 6.8% |
Australian bonds | 5.1% | 2.7% | 3.8% | 5.1% | -2.7% | 0.6% | 2.6% |
Global bonds (hedged) | 5.3% | 3.0% | 5.4% | 5.3% | -3.1% | 0.5% | 2.6% |
Global high yield bonds (hedged) | 10.4% | 3.2% | 6.5% | 10.4% | 0.5% | 4.0% | 4.4% |
Australian inflation-linked bonds | 7.8% | 2.7% | 3.7% | 7.8% | 1.6% | 3.0% | 3.2% |
Cash | 3.9% | 0.4% | 1.1% | 3.9% | 1.7% | 1.4% | 1.8% |
AUD/USD | 0.6% | 2.9% | 5.7% | 0.6% | -4.0% | -0.6% | -2.7% |
Past performance is not a reliable indicator of future performance.
Sources: Australian shares – S&P/ASX 200 Total Return Index; Global shares (hedged) – MSCI All Countries World (A$ hedged, Net); Global shares (unhedged) – MSCI All Countries World in A$ (Net); Emerging markets – MSCI Emerging Markets in A$ (Net); Australian property securities – S&P/ASX 300 A-REIT Accumulation Index; Global property securities – FTSE EPRA/NAREIT Developed (A$ hedged, Net); Global listed infrastructure – FTSE Global Core Infrastructure 50/50 (Hedged $A); Australian bonds – Bloomberg AusBond Composite 0+ Yr Index; Global bonds (A$ hedged) – Barclays Global Aggregate (A$ hedged, Gross); Global high yield bonds (A$ hedged) – Barclays US High Yield Ba/B Cash Pay x Financials ($A Hedged); Australian inflation-linked bonds – Bloomberg AusBond Inflation Government 0+ Yr Index; Cash – Bloomberg AusBond Bank Bill Index; AUD/USD – WM/Reuters Daily (4 pm GMT).
Key events in global markets over the last three months to December
Global shares have experienced considerable turmoil over recent months but have managed to climb the ‘wall of worries ‘. Inflation concerns, rising bond yields and the tragic Hamas-Israel conflict beginning in October initially caused global share prices to fall sharply. Encouragingly there was a strong share rebound given hopes that milder inflation would allow central banks to reduce interest rates over the next year. Global shares (hedged) recorded an extraordinarily strong 8.7% return for the past three months. The revival in the Australian dollar has seen global shares (unhedged) deliver a more moderate but still strong 5% return for the past three months.
Wall Street’s benchmark S&P 500 Index delivered an extraordinary 11.6% return, in local currency terms, for the quarter. Yet this has been a volatile performance given swings in sentiment on inflation and interest rate prospects. US consumer inflation has moderated over the past year which has allowed the US central bank to suggest that lower interest rates are on the agenda for 2024.
European shares have also delivered strong gains in local currency terms. While the continuing Russia-Ukraine war is a major concern, investors have taken solace in milder inflation and the prospect for lower interest rates.
Asian share markets have delivered a mixed performance. The MSCI China Index continues to disappoint with a -4.8% return in local currency terms. Concerns over China’s economic activity and the financial stress in the property sector remain formidable headwinds to investors. By contrast, Japan’s Nikkei 225 Index delivered a strong 5.2% quarterly return with the central bank’s assurance that interest rates would remain low despite rising inflation.
Global bonds (hedged) delivered a strong recovery with a 5.4% quarterly return. Milder inflation with signs of a slowing global economy has encouraged investors that lower interest rates are on the horizon.
Global high yield bonds (hedged) made a very strong 6.5% gain for the quarter as investors found the elevated yield level of corporate bonds more attractive.
Key events in Australia over the last three months to December
Australian shares delivered a very strong quarterly return of 8.4%. There were remarkable gains of 16.5% for the Real Estate sector on hopes that interest rates are set to fall next year. There were also robust gains for the Health Care sector (13.1%) after falls earlier in the year. Financial shares (8.2%) also made sharp gains with expectations that interest rates have peaked. Yet there were some disappointments. The Energy sector (-9.1%) went backwards as slower global economic activity undermined coal and oil prices. The Utilities sector also delivered a weak -2.1% return as the health of the consumer came into the spotlight.
Australia’s economy is displaying significant slowdown signs with weak retail spending and housing construction. The impact of higher goods and services prices, rising mortgage interest rates and rent has generated a ‘painful squeeze’ for Australian consumers. However there has been positive surprises. Employment has recorded solid gains and the unemployment rate remains low at 3.9%. The RBA raised the cash interest rate by 0.25% to 4.35% in November citing that inflation was “still too high and is proving more persistent than expected.” The RBA kept interest rates on hold in December with milder inflation results.
Global prospects
Global share prices have favourably surprised investors this year by making extraordinarily strong gains. The mania for Artificial Intelligence “AI” and technology has been the key driver. There is also confidence that the inflation threat has faded which could lead interest rates to fall in the next year.
However, these exuberant expectations may not be fulfilled if inflation proves more persistent and central bankers more stubborn in lowering interest rates. The continued tragic Russian-Ukraine War and Hamas-Israel conflict is also key threats to global economic stability and investor sentiment. Investors will also need to contend in 2024 with national elections in the United Kingdom, India, Indonesia, Mexico and the United States which could transform the global political landscape.
Accordingly, there are significant inflation, interest rate and political risks that investors should be cautious of. Assessing these complex risks is particularly challenging. As there are multiple positive and negative outcomes possible over the next year, investors should maintain a disciplined and diversified strategy.
Important information
This communication is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (MLCI) and IOOF Investment Service Limited (ABN 80 007 350 405, AFSL 230703) (IISL). Both MLC and IISL are part of the Insignia Financial Group of companies (comprising Insignia Financial Ltd, ABN 49 100 103 722 and its related bodies corporate) (‘Insignia Financial Group’). An investment with MLCI or IISL does not represent a deposit or liability of, and is not guaranteed by, the Insignia Financial Group.
This information may constitute general advice. It has been prepared without taking account of an investor's objectives, financial situation or needs and because of that an investor should, before acting on the advice, consider the appropriateness of the advice having regard to their personal objectives, financial situation and needs.
Past performance is not a reliable indicator of future performance. Share market returns are all in local currency.
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