Quarterly investment update - July to September 2023

Daniel Selioutine - 11 Dec 2023

Daniel Selioutine (Group Executive, Investments) provides economic and market commentary for the July to September 2023 period.

Market performance

The US economy has remained resilient, supported by strong employment and moderating inflation. Consumption growth picked up over the September quarter, although the balance of excess household savings has significantly reduced, with the savings rate below the long-term median. European growth is slowing, namely in Germany, whereas positive growth momentum is holding up in Japan, supported by recovering domestic consumption.

Leading indicators of economic activity have been volatile but still generally weak. Purchasing Managers' Index (PMI) still signals contraction in manufacturing output in most developed countries. Consumer and business sentiment levels are low.

Inflation is decelerating at different speeds across developed markets. Higher energy costs have put some upward pressure on US headline inflation since July, but inflation has continued to moderate in Europe, Australia and the UK. Services costs, particularly shelter, have remained a key driver of headline and core inflation in most markets, offsetting goods disinflation.

House prices are rising in Australia and the US amid a notable supply shortage, despite significantly higher mortgage rates. Ongoing housing market imbalances and returning overseas demand could continue to lift house prices higher in the short term.

Most central banks appear to be nearing the peak of their rate-hiking cycles, but have signalled the need to keep rates higher for longer.

Current market pricing is the expectation of another rate hike by the RBA and for the cash rate to stay at around those levels through 2024. Financial markets expect the US Federal Reserve to keep rates at current levels until around the middle of 2024.

China's economy is facing multiple challenges, with weak domestic and export demand fuelling deflationary pressures. Demand for property shows no sign of stabilisation. Monetary policy has been supportive, with minor rate cuts. Some fiscal measures have been announced, but the size of this injection appears to be small relative to history. Further support may be required given the scale of domestic challenges. Geopolitical tensions are concerning but there is dialogue on trade relations.

Equity market performance has been volatile over recent months driven by higher bond yields; however, equities in general are still well above their October 2022 lows. Government bond yields are also generally higher but have been volatile and most recently have been falling, with increasing market expectations that cash rates have peaked. Commodity prices have been mixed; oil has fallen sharply in recent months while the iron ore price has been strong on expectations of China stimulus.

Accumulation Plan performance

Accumulation Plan investment performance was positive over three years to 30 October 2023. Eight of nine investment options outperformed their equivalent SuperRatings* median fund. Performance against CPI objectives remains challenged over the shorter term by persistently high inflation.

ESSSuper Accumulation Plan investment option performance:
Three years to 30 October 2023 (net of tax, net of fees)

Cash option returns are depicted against the median SuperRatings Cash option. Defensive option returns are depicted against the median SuperRatings Secure (0-19) option. Conservative and Balanced option returns are depicted against the median SuperRatings Capital Stable (20-40) option. Growth option returns are depicted against the median SuperRatings Conservative Balanced (41-59) option. Ethically Minded and Basic Growth option returns are depicted against the median SuperRatings Balanced (60-76) option. High Growth option returns are depicted against the median SuperRatings Growth (77-90) option. Shares Only option returns are depicted against the median SuperRatings High Growth (91-100) option.

* SuperRatings is a third party superannuation research company providing data analysis, information and commentary to both the public and the superannuation industry. Refer to superratings.com.au for more information. Ratings are only one factor to be taken into account when choosing a super fund.

Emergency Services Superannuation Board (ABN 28 161 296 741) (ESSB), the Trustee of the Emergency Services Superannuation Scheme (ABN 85 894 637 037) (ESSSuper).

This investment commentary does not constitute advice. Investment returns cannot be guaranteed as investment markets can be volatile. As a consequence, returns can be positive or negative. Past investment performance is not a reliable indicator of future performance.

Benefits in ESSSuper's Accumulation Plan, Income Streams and Beneficiary Account products are not guaranteed or underwritten by the Victorian Government or ESSSuper, and ESSSuper does not come under the jurisdiction of the Australian Financial Complaints Authority (AFCA).

The information contained in this update is of a general nature only. It should not be considered as a substitute for reading the relevant ESSSuper Product Disclosure Statement (PDS) that contains detailed information about ESSSuper products, services and features. Before making a decision about an ESSSuper product, you should consider the appropriateness of the product to your personal objectives, financial situation and needs. It may also be beneficial to seek professional advice from a licensed financial planner or adviser. An ESSSuper PDS is available at esssuper.com.au/pds or by calling 1300 650 161.