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Printed: 23 June 2024 5:04 PM


23 Jan 2023 - Outlook Snapshot

By: Cyan Investment Management

Outlook Snapshot

Cyan Investment Management

December 2022

As a broad statement, it feels as if the market is in somewhat of a holding pattern. Even the central banks seem uncertain about the economic outlook. For example, in June last year, the governor of the US Fed, Jerome Powell, explained ''I think we now understand better how little we understand about inflation''. 

Further, RBA stated that interest rates would stay low until 2024. It has subsequently increased rates by 300 basis points (bp) with the most recent rise of 25bp taking the cash rate to 3.1%. The tightening of monetary policy has been swift and aggressive, which has thrown equities markets into a spin. 

As stated in our September monthly report: "We believe the most-likely first positive catalyst for a stock market recovery will be a line of sight as to when the interest rate hike cycle will end. Most central banks in developed economies are rapidly and aggressively raising rates. Stock markets hate this. We don't know if this monetary policy strategy will curb inflation as hoped, but an end to this cycle could provide a clear positive catalyst for a shift in sentiment for equities." 

The market is currently consumed by this issue and economists seem to be at the centre of every discussion. 

Gareth Aird, Commonwealth Bank's head of Australian economics, had previously forecast the RBA's rate hike in early December would be the last but he has updated his predictions after the RBA signalled more rate rises. He stated, "The tweak in forward guidance was not as material as we anticipated and as a result, we shift our risk case to our base case....We now expect one further 25 basis point rate hike in February 2023 for a peak in the cash rate of 3.35 per cent". 

Chief Economist at AMP Shane Oliver believes the cash rate has now "peaked" -- with a high risk of one final 0.25 per cent hike to 3.35 per cent in February. By end 2023 or early 2024 he expects the RBA to start cutting rates. 
It does appear we are nearing the end of the cycle so we hope for a shift in sentiment in the relatively near future. That said, at Cyan we invest on a bottom-up fundamental basis where we find individual companies that are small but well positioned in their chosen industry and will provide growth over time and through economic cycles. In our view, all the companies in our portfolio will have materially stronger market share positions in their industry in years to come, irrespective of economic conditions. 

However, that value doesn't get released in a straight line, and we are in the middle of one of those frustrating periods at the moment. But the market is forward looking, so investors waiting for genuine clarity around the economy may well find that the market has already moved ahead of them this year. 

Funds operated by this manager:

Cyan C3G Fund

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