Best and worst performing shares of the last financial year + is this the end of rate rises?

Hi everyone,

A lot to get through this week:

• is this the end of rate rises?

• best and worst performing shares of the last financial year

• a deep dive into the property market

• is CSL a “quality dog”?

• plus a speculative share punt which has caught the attention of the share gurus.

But first, yes, it’s that time of the month when the Reserve Bank decides your mortgage repayments. This time they’ve given us a breather.

On Tuesday, the RBA kept official interest rates on hold at 4.1 per cent. BUT (yes, I deliberately put this in capitals) don’t think this is the end of the rate hike cycle. Yes, the RBA (I think) did the right thing in pausing after a better-than-expected monthly inflation figure and signs the jobs market is easing.

But those economic trends need to continue for this pause to last longer than a month.

In the RBA statement attached to the decision, the Board noted three key reasons why they kept the cash rate unchanged:

1. “Interest rates have been increased by 4 percentage points since May last year.” 

In other words, we’ve seen the biggest and quickest interest rate rise for a generation and it is having an impact on Australians meeting their loan repayments. Business insolvencies are skyrocketing and the economy is still growing, but slowing massively. The RBA doesn’t want the economy to fall off a cliff so is pausing to see more economic data on the slowdown.

2. “The monthly CPI indicator for May showed a further decline.” 

As I noted a couple of weeks ago, the monthly CPI decelerated to 5.6 per cent a year in June – down from 6.8 per cent in May and way down on what analysts had forecast. But I mentioned at the time that monthly CPIs can be pretty volatile and that the RBA looks more closely at the quarterly figures. I reckon there’s also concern about the huge number of price rises which came through on 1 July. So, they’ll be watching the upcoming inflation figure like a hawk for any spike up. That downward inflation trend must continue.

3. “The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the economic outlook and associated risks.” 

The big one here is the June quarter CPI which is released ahead of the August Board meeting, which will provide the RBA a full assessment of the inflation picture. I reckon that one economic figure will singularly determine the interest rate decision next month.

Importantly the forward guidance from the RBA was unchanged from what was used in both May and June. The same sentence – “some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve” – was retained in July.

The key economic events between now and the next RBA meeting on 1 August will be June labour force data (due 20/7), Q2 23 CPI (26/7) and June retail trade (28/7).

I know lots of borrowers are breathing a sigh of relief after the rate pause, but that doesn’t mean you shouldn’t keep trying to get a better loan deal.

I love these tips from RateCity on the three things you should do before you pick up the phone to haggle: 

• Check what rate you’re currently paying.

•  Check what your bank is offering new customers.

•  See what other lenders are offering and arm yourself with at least two or three rates that would apply to your mortgage.

Now you’re ready to call your bank and haggle, here are the three things you can say to get a decent cut:

• Mention that you’re considering refinancing and list a few lenders and their rates. If you name-drop a couple of competitors, they might be more inclined to take notice.

• Ask to speak to the retention team – they’re the ones with the license to hand out bigger discounts.

• If they still don’t budge, ask for a mortgage discharge form. That should be enough to call their bluff.

Exporters continue to underpin the economy

I know I keep rubbing it in, but this week’s bumper trade figures and the discussion around a massive lift in our budget surplus did make me smile.

Regular readers would know that last October when the Federal Treasurer forecast a huge budget deficit for the year ended June, I made a bet with him that it would be a surplus, not a deficit.

The reason was that he and Treasury had massively underestimated the income from our exports, particularly iron ore and coal.

The latest export figures show just how wrong they got it and, with a big boost from company and personal tax, the Federal Government is literally rolling in money.

The trade surplus increased by $A1.3bn to $11.8bn in May 2023. The result was driven by increases in exports across the board with a large jump in non‑monetary gold the dominant factor. An increase in imports partially offset the strength in exports with passenger vehicle imports rising strongly.

Total exports rose by 4.4 per cent in the month. Non‑monetary gold exports were A$1.3bn higher, representing a 77.1 per cent increase.

The value of non‑rural goods exports rose by 1.9 per cent, despite significant falls in commodity prices in the month; the quantity or volume of many non‑rural exports increased in May which offset some of the falls in prices.

The value of iron ore (‑1.9 per cent) exports fell, but this was an outlier as coal (+1.6 per cent) and oil and gas (+3.4 per cent) rose.

Rural exports increased by 5 per cent with other rural (+16.1 per cent) offsetting marginal falls in meat (‑2.1 per cent), grains (‑0.9 per cent) and wool (‑1.1 per cent).

Services exports continue to push higher, up 1.4 per cent, and tourism‑related exports (people coming to Australia) was solid again, up 2.2 per cent. Tourism exports are now just 5 per cent below their pre-COVID levels.

Tourism imports (people going overseas on holidays) dropped 3.8 per cent in May… probably because it’s just so expensive.

Sharemarket winners and losers of last financial year

Raging inflation, massive increases in interest rates, the global economy weakening… and the ASX-200 share index went up 10.14 per cent. Who would have thought?

With so much doom and gloom around, share investors well and truly beat inflation and interest rate returns. I love a good dose of perspective. But remember this is the ASX-200 which is the large company end of the market. The small and mid-cap stocks, particularly those not making a profit, had a much tougher financial year.

At the big quality end of the market, the gains were across the board. Surprisingly the technology companies led the way with the biggest gains.

While big tech companies have led the US market over the last year, Australia’s equivalent haven’t been given the kudos of doing the same… the likes of Xero, WiseTech, TechnologyOne, Altium and Audinate have had super impressive rises.

The top five performers are a surprising mix. Yes, there’s the “hot” lithium stocks like Liontown and Pilbara in the mix and logistics tech company WiseTech has been a market darling all year.

But who would have thought Telix Pharmaceuticals and Life360 (which was the 8^th worst performer the previous year) would make a top five list? 

What a difference a year makes. While Life360 went from being a “dog” in 2021/22, BrainChip did the reverse and went from the penthouse (top performer) to the doghouse in 2022/23.

But here’s the thing. There is an investment strategy called “The Dogs of the Dow” (I’ve written about this before) where you invest an equal amount (keep it relatively small) in the worst performing big cap stocks (in the ASX 200) at the end of a year and you’ll make money over the next 12 months.

This is not a recommendation, just an interesting theory which came out of the US, hence its name “Dogs of the Dow”. So here are the five worst performing stocks in the ASX-200 for the last financial year. Put them on your watch list and see how they go.

Property wrap… still looking healthy

CoreLogic’s latest national Home Value Index for June showed a 1.1 per cent rise. Since finding a floor in February, the national measure of housing values has gained 3.4 per cent but is still 6 per cent below peak levels of April 2022… in dollar terms that’s about $46,000 below the $767,000 peak.

Sydney still leads the way with a 1.7 per cent rise in values in June to be up 6.7 per cent since the low of January. A lack of supply of homes for sale is behind Sydney’s increase, which I’ll get to in a minute.

Although housing values continue to increase across the country (Hobart was the only capital to decline in June), the pace of growth is slowing as higher interest rates and nervous consumers are making buyers wary of committing to big ticket items.

Regional housing values have also gone higher, but at a slower pace compared to the capitals.

Where are the sellers? Property listings still in the doldrums

Ray White analysis of new listings shows that June failed to reach last year’s levels once again. Nationally, new properties for sale remain down 8.3 per cent year-on-year in June. Sydney, Canberra and Melbourne are still well down on the same month last year.

New listing levels vary across the country, with Perth taking the top spot for listings decline with a year-on-year loss of 24.4 per cent.

But pets are more welcome than ever in rental properties

This is a bit quirky, but it seems landlords are understanding that you’re more likely to get a tenant if pets are welcome.

Real estate giant Ray White has analysed its rental roll and found that the more a state favoured the landlords’ right to refuse pets from the property, the more frequently other landlords would express the opposite sentiment and advertise a pet-friendly property. It makes sense to advertise this way as a landlord, as you will immediately get more interest from pet-owning prospective tenants than if you were in a state where pets are allowed in rentals as a default position.

We can see in the Ray White chart below, almost all cities have seen huge growth in pet-friendly listings, which is encouraging to see with pet ownership in households at 69 per cent and rising.

Quietest weekend in three months 

Property listings plunging equates to lack of auctions and this weekend is looking like being the quietest in the last three months (excluding the June long weekend).

According to CoreLogic, the number of properties scheduled for auction this week is 3.6 per cent less than last week and 8.7 per cent lower than the same week last year.

Sydney has 621 homes scheduled for auction, down 8.1 per cent from last week and down 2.6 per cent on same week last year. There are 582 auctions scheduled in Melbourne this week, up 5.8 per cent from last week but down 7.2 per cent on last year.

Brisbane and Adelaide are each set to host 102 auctions this week, down 22.1 per cent and 8.9 per cent respectively from last week and respectively down on a year ago by 29.2 per cent and 35 per cent.

Stock of the Week: Is CSL “a quality dog”?

During the week on my daily sharemarket streaming show The Call (midday Eastern on www.ausbiz.com.au), a viewer emailed in asking why Aussie global healthcare giant (and market darling) CSL is regarded so highly when its share price has done nothing in five years. The viewer asked whether it should be labelled a “quality dog” rather than a “quality blue chip”.

Well, you could have heard a pin drop in the studio as our expert panel of Rudi Filipek van Dyke (FNArena) and David Lane (Ord Minnett) were gobsmacked. Both vehemently argued CSL deserved all the plaudits as it consistently delivered reliable profit growth… despite a recent profit warning which is short term.

Rudi claims that while the share price is going through a period of sideways movement, the company is still producing good profits and the share price will eventually reflect that.

David Lane agreed that the company is still strong, but the market was waiting to see how well it digests a recent major takeover acquisition.

Both agreed CSL is still good buying anytime its share price falls below $300.

Mark Moreland from Teaminvest chimed in a couple of days later and made the point that if share price is flat but profits are up, then EPS (earnings per share) falls. He’s an investor in CSL and is happy with it because he’s confident the share price will catch up when EPS drops on such a quality stock.

Speculative Stock of the Week: Retail Food Group 

At the other end of the quality scale, Retail Food Group (RFG) came up on The Call this week. It has been a disaster for years. Back in 2015 its share price hit a peak of almost $8… today it is 6 cents. Wow.

We have Domino’s (pizza) and Collins Foods (KFC, Taco Bell) both listed on the sharemarket and dominating that food retail sector.

RFG owns, operates, and franchises restaurants such as Donut King, Michel's Patisserie, Brumby's Bakery, Esquires Coffee Houses, Gloria Jean's Coffees, Pizza Capers, Gourmet Kitchen, and Crust Gourmet Pizza.

That is a serious portfolio of great food brands, so why is it trading at just 6 cents a share when Domino’s is at $45 and Collins Foods at nearly $10?

Mark Moreland from Teaminvest was an investor in RFG years ago but sold out just before the shares collapsed. RFG was accused of misleading franchisees and mismanaging the company. The disputes went through the courts for years and significant compensation was paid to franchisees and fines were imposed.

In short, it was a corporate disaster that has lasted for years and been incredibly painful for shareholders… $8 to 6 cents is a massive fall from grace.

But, both Grady Wulff from Bell Direct and Mark Moreland now think it is a speculative buy at these share price levels. They both reinforce that this is a punt.

The reason they both reckon RFG is worth a look is that all the legal actions are now over, all the compensation and fines have been paid. What’s left is new management and an impressive range of strong retail food brands.