October 2023 Report
The past 3 months have been a tough time for both Australian and global investment markets. The conflict in Israel, continued issues in Ukraine and the slowing of major economies have meant that most share markets have seen negative results.
The conflict in Israel is not new, in reading history records there have been wars and disputes in this area since 900BC. The difference now is that the weapons are more dangerous and the oil supplies to the world are potentially affected.
Investment markets are not immune to negative sentiment when there are major conflicts. As an example, after Russia invaded Ukraine on February 24, 2022, it rattled global markets. In the U.S., the S&P 500 index fell more than 7% in the weeks immediately following the incursion, as the U.S. and other nations stepped up severe economic sanctions on Russia and investors worried about the impact of commodity prices. However, a month later markets had rebounded, and the S&P was trading at a level higher than before the invasion, even as the price of oil remained elevated above $100 a barrel.
Investment markets tend to react to bad news in anticipation of shares not performing to previous expectations. The stocks that have good quality business models that are making good profits will drop initially however they tend to be the first to recover. It’s a bit like having a farm where you have a poor season, the last thing you do is sell in bad times as you get the least return.
With the markets falling in the past 3 months some of the yields look attractive even if we feel uncomfortable in the short term. As an example of recent share prices:
| Share | Current price | 52 week high | 52 week low | Current yield |
| BHP | $45.11 | $50.21 | $37.40 | 5.9% |
| CBA | $96.22 | $111.43 | $93.05 | 4.7% |
| Woodside | $34.31 | $39.58 | $30.91 | 9.9% |
| Macquarie | $160.19 | $195.74 | $158.61 | 4.7% |
| Woolworths | $34.91 | $40.35 | $31.67 | 3% |
In most cases these shares are paying dividends above the cash and short term interest rates, they carry (franking) tax credits that make them more attractive than pure interest paying deposits.
Over the longer term the dividends from quality shares tend to increase making the yield on the original investment much more attractive over time.
Market corrections usually create buying opportunities where shares get oversold. Having cash available to buy quality investments when others are panicking usually creates the best investment decisions.
Chris Mann
