Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper PDS and TMD.

Lyndon: Hello and welcome to Super Informed Radio, the official UniSuper podcast. I'm Lyndon, and this is the first in a new series of monthly investment market update podcasts that we'll be doing. As many of you will know, we have an outstanding in-house investment team here at UniSuper. They are the best in the business. So, in each of these podcasts, we're going to be looking to them and asking them what's been happening in investment markets over the past month, and what we're going to be watching this month.

Straight up, I'm going to introduce you to David Colosimo. He's a highly experienced economist and investment manager in our investment team, and he focuses on Australian and global macroeconomic trends, and he works across a range of portfolios in our fund. And he's going to be a regular contributor to this podcast, in fact. David Colosimo, welcome to Super Informed Radio.

David: Thanks, Lyndon. It's great to be here.

Lyndon: David, let's start off overseas. When it comes to highlights in April, it's pretty hard to pass the fall in the US market.

David: Fall is probably a bit of an understatement, Lyndon. The word I'd use is carnage. The US share market was down just under 9% in April. That's the biggest monthly fall since the onset of the pandemic. And it was some of those big technology market darlings that have taken the biggest hit. So, the five biggest companies in the US are Apple, Microsoft, Google, Tesla, and Amazon, and they were all down between 10% and 25% in the month.

In that technology space, it does feel like a lot of companies that were priced for continued strong structural growth in earnings. But the market's less prepared now to pay for all of that optimism, and price-to-earnings multiples have been rated lower. However, even outside of that tech sector, the falls was still quite broad-based. There are 11 major sectors in the US share market, and of those, 10 of them fell in April. It was only one of the more defensive sectors, which is ‘consumer staples’—that's companies like Procter & Gamble and Walmart—there was only one of those sectors that managed a gain. Now we're still in the middle of us reporting season, and that goes on for the next few weeks. So far, we've seen a few disappointing results, but on the whole, it's still been better than those market moves suggest.

Lyndon: So we've seen big moves in the bond market, is that having an impact on shares as well?

David: Bond yields have continued to march higher in April. In fact, US bond yields have almost exactly doubled since the beginning of the year, and the big culprit here continues to be inflation. At 8.6%, US inflation is the highest it's been since 1981, and that's stronger and more persistent than most have expected. The US Federal Reserve is now realising that they're going to have to raise rates quickly to get inflation under control.

Bond prices move opposite to bond yields, so when these yields are rising strongly, bond prices are actually falling. So US 10-year bonds were down 5% in April and nearly 12% this year. That's not exactly the sort of performance you expect from a defensive asset. Now as you suggested, these bond moves are also causing havoc in the share market and I think that gets back to the fact that concerns are rising that the need to drive inflation down is actually increasing the risk of a recession in the US.

So the US share market's now down nearly 14% from its peak in early January this year. We've already talked about technology, but when you look at the other sectors that would go badly in a recession, like banks and transportation companies, they're also down. We're now four months into 2022 and both share markets and bond markets have had their weakest start to the year in decades. It's actually quite unusual for both markets to show this much weakness at the same time.

Lyndon: Although things have been a bit better for investors, here in Australia, haven't they?

David: Yeah, that's true and that's for two reasons. First, the Australian dollar has fallen by more than 5% during April. This helps cushion the blow from falling US markets because the falls are smaller when expressed in Australian dollar terms. Secondly, and more importantly, Australian shares have actually been a lot more resilient. Australian shares have fallen by less than 1% in April compared to that 9% fall in the US, Now just like the US, our technology sector was also very weak, down more than 10% in April—but it's a much smaller share of our market.

Some of the other cyclical sectors, such as resources, were also weak. But of those 11 industry sectors, seven of them in Australia were actually stronger this month. So the market is seemingly less worried about a recession in Australia compared to the US. So after years of trailing that tech-heavy US market, Australian shares have now outperformed the US for three consecutive months. That's the longest streak in seven years.

Lyndon: Yeah, right. So some global turmoil but things aren't quite as bad for us here in Australia. David, what are some of the things that we're looking out for this month in May?

David: Well, Lyndon first and foremost, we've got the RBA meeting which may have actually already occurred by the time some listeners are hearing this podcast. Compared to other central banks, the RBA have been more reluctant to start raising interest rates as quickly here in Australia. But after a strong inflation report at the end of April where we saw underlying inflation at its highest level since 2009, now the majority of economists are thinking that the RBA will deliver their first interest rate increase in 11 years in May. Some are still expecting they might wait until June to avoid hiking during the election, but a hike in either May or June does feel like a done deal.

The bigger question is how quickly they raise rates once they start. Current pricing suggests they'll increase the cash rate by about 2.5% by year end. Now also the US Federal Reserve is meeting later this week. They've already raised rates once this year and it seems all but certain that they'll follow up with a half percentage point hike, which is probably going to be the first of many.

And finally, we have the Australian election coming up on the 21st of May, and of course we continue to closely monitor the situation in Ukraine. So, the RBA and US Federal Reserve meetings, and our federal election, are the key things we're watching this month.

Lyndon: David Colosimo, thank you so much for joining us on Super Informed Radio for this investment market update podcast.

David: Thanks, Lyndon.

Lyndon: And that wraps up this investment market update podcast. Thank you so much for joining us. If you'd like to know when our next podcast drops, you can subscribe to us via any good podcast app or check unisuper.com.au/podcasts.

For any of you out there who don't know, UniSuper is the place where bright minds and passionate people strive to think great and create a future worth retiring for. So, whether you're a UniSuper member or not, if you'd like more information about our investments, visit our website unisuper.com.au. Thanks for listening and we'll see you next time.


This podcast is of a general nature. It doesn't take into account your personal financial situation, needs or objectives. Before you make decisions about your super, we recommend you seek financial advice. Also, consider the product disclosure statement and target market determination that's relevant to you. They're available on our website. The past performance of any investment options we discuss isn't indicative of their future performance, and it's worth noting that by talking about certain companies, we aren't endorsing them for inclusion in your personal portfolio.

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