Globally equity markets performed strongly in January. In the US, the S&P 500 increased +1.6%, the Nasdaq rose +1.0%, whilst in the UK, the FTSE100 declined -1.3%.

In Australia, the ASX All Ordinaries Accumulation Index rose +1.1%. Energy and Financials were the best performing sectors, whilst resources was the weakest performer, as sentiment towards the Chinese economy weakened.

Inflation data both domestically and offshore continues to moderate, which in our view indicates the bulk of the heavy lifting by central banks in terms of interest rate hikes has now been done. The US economy appears to be ahead of Australia in terms of getting on top of inflation, hence we expect the US will see interest rate cuts before Australia over the next 12-18 months. In bond markets, following two months of very material declines in bond yields, January saw a slight increase as economic data pointed to a still strong global economy (despite the aggressive tightening by central banks). In the US, the 10-year bond rate climbed +17 basis points (bp) to close at 4.01%, whilst in Australia the 10-year bond rate rose +6 bp to also finish at 4.01%.

As always, February is a very busy month with the vast majority of the fund's holdings reporting results for the six months to 31 December 2023. The upcoming reporting season will provide visibility into how the companies are performing operationally. Whilst we have seen a recovery in equity markets in recent months, we continue to be very optimistic about the outlook for small/mid cap stocks on the ASX given their cheap valuations and material underperformance over the last two years.

To reiterate, our focus in 2024 will be identifying quality businesses trading on attractive valuations, where we believe material earnings upside exists.