CFS Market Insights: March 2024

Welcome to CFS Market Insights.

Even amid the uncertainties and interesting backdrop, both economically and geopolitically, we're pleased with the performance we've been able to achieve in the year ending December 2023 with double digit investment returns.

A key call out is the above median double digit returns to the end of December 2023 for members of the Lifestage balanced and growth funds. A large proportion of our members are invested in these options. Our sustainable investment option, Thrive+ sustainable growth, also delivered double digit returns over the same period of 15.1%.

We think this demonstrates that a sustainable growth fund can deliver compelling returns for investors, while also making a positive contribution to the environment.

Turning to the drivers of investment performance, global equities were a major contributor. Technology companies pushed the overall performance of share markets higher, as investors expected generative AI tools such as ChatGPT to deliver a significant productivity boom.

As an example, shares in Nvidia, one of the major semiconductor companies, grew by over 200% during 2023.

So these results place CFS as amongst the highest performing super funds in 2023, significantly outperforming the median balanced and growth fund returns reported by Super Ratings and also Chant West.

I've spoken in the past about inflation volatility and that's becoming more obvious to investors and it's feeding into market returns and also headlines as well.

Previously, the expectation was for central banks to start actually cutting rates in early 2024. But we now think that that's unlikely to happen with cuts delayed until later in the year.

Market and investor excitement for rate cuts has been wound right back. Interestingly, the RBA still appears to be on a slight tightening bias. So this is going to be one to watch, particularly in contrast to the monetary policy decisions of the US Federal Reserve and the European Central Bank.

The US economy continues to remain very robust. In January, we saw a very strong US labour market data, which saw a significant upswing in hiring, as well as very strong wage growth and that significantly exceeded market expectations.

This is important because that was on the back of expectations at the end of last year that interest rates might actually be cut in the US. With this new data, markets now expect that those rate cuts will be further out this year.

2024 is also a significant year of elections where about half of the world's population will go to the polls, representing 80% of the world's share markets.

While the results from Taiwanese and Indonesian elections have been benign, certainly, of course, for financial markets, the main focus, of course, is the US election in November where Trump is expected to run as a presidential candidate for the Republican Party.

As we've seen in several European countries, the rise of populist governments will mean navigating through possible policy changes and new governments coming in amid rising geopolitical tensions.

We saw a practical example of the dangers of this in the UK 18 months ago, where the government under Liz Truss produced £45 billion worth of unfunded spending commitments.

This led to a significant adverse reaction, particularly in bond markets, which led to three pension funds in the UK nearly going bust and significant tensions in the UK mortgage market.

Turning to China, the government there continues to signal that it will deploy more targeted stimulus to help its economy and stabilise the challenges of its property sector.

Interestingly, the Chinese government is potentially looking at its equity market as a policy tool to try to kickstart more positive momentum and market confidence.

Market watchers are paying particular attention to whether or not China can pull through without requiring further major economic stimulus.

As we watch these events closely and expect another eventful year, CFS continues to focus on managing risks as well as capitalising on opportunities. We're actively managing your investments for resilience and diversification, where liquidity and flexibility will be the important features of our portfolios.

We believe that the key to navigating markets in 2024 will be to avoid complacency, remain vigilant and focus on diversification and the maintenance of liquidity in our portfolios.

Thanks for watching CFS Market Insights. See you next time.