1FY24
Performance

Meanwhile, what we describe as the ‘New Investment Order’ thematics demonstrated further momentum, with disruptions to global trade and commerce, increased friendshoring or reshoring of capital, and increased defence spending. Elections across the globe further catalysed these dynamics, with populist leaders gaining ground.

All that said, there were some positive developments, such as improved dialogues between China, Australia and the US, and the lifting of some restrictions on the export of Australian primary products.

Nonetheless, the geopolitical landscape remains fraught with uncertainties. In our recently published position paper titled Geopolitics – the Bedrock of the New Investment Order, we set out how we define and conceptualise geopolitics, why we think it is so important, and how we incorporate such uncertainties into our investment process.

The cyclical investment backdrop was generally positive over the course of the year.

The global economy, particularly in the US and Australia, was broadly resilient as swift disinflation and tight labour markets provided a tailwind to real incomes which supported consumption along with excess savings.

Inflation continues to moderate towards target across the developed markets complex although the pace of disinflation has slowed meaningfully during this calendar year to date. Goods deflation from supply side normalisation is no longer providing a tailwind and services inflation is proving to be sticky, driven by tight labour markets.

Regional divergences persisted into 2024, with the US economy at or above-trend growth for most of the year and Australia proving resilient overall but somewhat weak on a per capita basis.

Most other developed economies languished, with low growth in the UK, Europe and Canada. While the domestic policy mix and structural economic challenges led to a relatively weak Chinese economy.

More recently, economic conditions in the US have shown signs of easing, although remaining broadly around trend, with inflation also printing more softly. Economic data in the rest of the world may have reached a local minimum, with conditions in China, Europe and the UK improving.

Since July 2023 developed market central banks largely held monetary policy steady at decade-high levels as they assessed the lagged impacts of a rapid policy-tightening cycle.

The steadiness in policy rates masks significant market volatility over the period as expectations for future policy easing swung meaningfully, reverberating through asset prices. Swift US disinflation into December saw significant policy easing priced for 2024, only to see most of that easing priced out by the end of April as inflation re-accelerated over the first quarter.

The People’s Bank of China refrained from stimulating the economy despite weak activity, due to fear of further currency debasement. Fiscal measures have been piecemeal and somewhat underwhelming in aggregate.

The Bank of Japan hiked its policy rate for the first time in 16 years in April, with officials satisfied that cost–push inflation from higher input prices and a weak yen would catalyse a ‘virtuous cycle’ between wages and prices, lifting the Japanese economy out of the ‘lost decades’ of stagnation.

As inflation continued to drift lower into the end of the financial year, several central banks have slowly shifted to easing monetary policy, with the Canadian, European, Swedish and Swiss central banks all lowering interest rates.

In the US, disinflation resumed in April and May as activity data moderated from the very strong levels seen over the prior six months. Services inflation remains uncomfortably high, however, and has only modestly reduced which is likely to limit monetary policy easing in the absence of any meaningful softening in the labour market.

Equity markets, and risk assets more broadly, rallied strongly over the year with the S&P 500 marking several new highs as rapid disinflation and robust US growth buoyed margin estimates and risk sentiment. The expected future productivity benefits of AI provided an additional tailwind to returns as did fiscally supported CapEx initiatives in the US as the re-industrialisation agenda continues.

Commodity markets also reflected the robust growth environment with oil and metals moving meaningfully higher, although relative softness in iron ore prices is likely owing to lacklustre demand from China.

With US elections on the horizon, shifting geopolitical dynamics, monetary policy in flux and an ever-expanding fiscal policy agenda, the economic environment remains uncertain and volatile. The investment environment, however, continues to present ample opportunity for investors.