Image; David Gray
· The S&P/ASX 200 Index surged in the third quarter of 2024 delivering 7.79% total return (S&P Global).
· The winners for the quarter were, the IT sector that delivered 16.12% return, followed by Real Estate sector with a return of 14.42% followed by Materials sector with a return of 10.84%.
· The US Federal Reserve started a new easing cycle with a 50-bps rate cut, fuelling investor sentiment and adding to market performance.
· The economy remains in a late cycle that has historically been characterised by lower returns and greater recession risk.
The Australian share market has posted its strongest September quarter performance since 2013, however some investors are beginning to express concerns that the market may have reached its peak, as economy remains in late cycle and valuations are beginning to look elevated.
Buoyed by investor optimism around the US Federal Reserve’s first interest rate cut in more than four years and China's economic stimulus measures, the S&P/ASX 200 Index surged in the third quarter of 2024. The index delivered a gain of 7.79% for the quarter (S&P Global).
Rebound in investor sentiment was one of the contributing factors to the overall market performance. Additionally, signs of economic recovery in China, particularly in manufacturing and infrastructure sectors, fuelled a strong rally in Australia’s commodity and energy sectors.
The ASX 200 closed on Friday at 8,212.2 points, hitting an intraday high of 8,225.5 points. This was close to the record intraday high of 8246.2 notched on 20 September. That sees the benchmark index up more than 17.5% over the past 12 months.
Investor sentiment has improved recently as inflation in theU.S. seemed to be coming under control and the Federal Reserve reduced interestrates by 0.50%. There is still some investor optimism that the Reserve Bank of Australia may follow suit.
ASX 200 mining stocks saw a significant boost last week after the People's Bank of China (PBoC) lowered reserve requirements for Chinese banks by 0.50%.
The buoyant ASX performance in the third quarter was also marked by several major capital market transactions. Both initial public offerings (IPOs) and mergers and acquisitions (M&A) contributed to the sentiment, underscoring the strength of Australia’s capital markets.
September saw the highly anticipated IPO of fintech company PayTech Holdings, which raised AU$ 850 million in its debut. PayTech sharessurged by 15% on their first day of trading, reflecting investor demand for innovative technology companies with strong growth potential.
The quarter also witnessed significant M&A activity,including Rio Tinto's A$ 2.5 billion acquisition of lithium producer Litho Resources Ltd. This deal highlights the growing demand for lithium as a critical resource in the renewable energy sector, especially as the world transitions towards electric vehicles and clean energy.
Another notable deal was the AU$ 1.8 billion takeover bid by HealthCo REIT for CarePlus, a leading healthcare provider. This acquisition is seen as a strategic move to consolidate the healthcare sector, which has been a strong performer on the ASX due to the aging Australian population and increasing demand for healthcare services.
Overall, the outlook for Australia’s economy remains mostly positive,with growth expected to accelerate in the final quarter of 2024 as China’s stimulus spending takes effect. The RBA's upcoming rate decisions will also play a pivotal role in determining market sentiment.
As one of Australia’s largest trading partners, China’s economic recovery will likely have a significant impact on Australian stocks, particularly in the resources and materials sectors.
China’s renewed investment in infrastructure is expected to further boost demand for Australian iron ore, coal, and liquefied natural gas (LNG).
The ASX’s best September quarter in more than a decade has fuelled optimism, but it has also raised concerns about whether the market has peaked. While lower interest rates in the US and China’s economic stimulus are driving growth, high valuations and global risks pose significant challenges for the remainder of 2024. The global economy remains in late cycle, which has traditionally been characterised by more subdued returns and higher recession risk.
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