Jeonga Kim

The debt markets, often referred to as the bond markets, can be seen as the collective name given to all trades and issues of debt securities, in which Governments are usually the largest part. Governments typically issue bonds in order to raise capital to fund spending including ports, hospitals and roads. Businesses issue debt securities when they need to finance business expansion projects or maintain ongoing operations.

We have experienced one of the fastest interest rate tightening cycles in history, that has created uncertainties for consumers and businesses including banks that have lent and invested money that has not incurred an adequate return. The collapse of Silicon Valley Bank, Signature Bank in the US and Swiss banking giant Credit Suisse in Europe exposed weakness following the interest rate increases. Debt markets seem to have painted a more dire outlook of global economic growth, whilst share markets seem to have held up fairly well.

In our April Ground Control, Andrew Papageorgiou, Managing Partner at Realm Investment House, Emmanuel Calligeris, Chair of the DWA Investment Committee, and Grahame Evans, Director of DWA Managed Accounts, had an in-depth discussion around debt markets. More importantly, has there been any disconnection between what has been priced in the debt markets and that of the equity markets? If so, what might be the implications for our investors and their investments?

The debt markets, often referred to as the bond markets, can be seen as the collective name given to all trades and issues of debt securities, in which Governments are usually the largest part. Governments typically issue bonds in order to raise capital to fund spending including ports, hospitals and roads. Businesses issue debt securities when they need to finance business expansion projects or maintain ongoing operations.

We have experienced one of the fastest interest rate tightening cycles in history, that has created uncertainties for consumers and businesses including banks that have lent and invested money that has not incurred an adequate return. The collapse of Silicon Valley Bank, Signature Bank in the US and Swiss banking giant Credit Suisse in Europe exposed weakness following the interest rate increases. Debt markets seem to have painted a more dire outlook of global economic growth, whilst share markets seem to have held up fairly well.

In our April Ground Control, Andrew Papageorgiou, Managing Partner at Realm Investment House, Emmanuel Calligeris, Chair of the DWA Investment Committee, and Grahame Evans, Director of DWA Managed Accounts, had an in-depth discussion around debt markets. More importantly, has there been any disconnection between what has been priced in the debt markets and that of the equity markets? If so, what might be the implications for our investors and their investments?

Market volatility persists as inflation remains uncomfortably high and interest rates to rise further. Regardless of how disciplined, investors sometimes act on emotion in a volatile market and make decisions that are susceptible to behavioural biases. We often panic and sell after market declines, and we often fear of missing out and buy after asset prices have increased.

In our March Your Investment Matters, Emmanuel Calligeris, Chair of Investment Committee, and Grahame Evans, Director of DWA Managed Accounts, had in-depth discussion around share market valuations, inflation, and interest rate expectations. How have these movements impacted accumulators and retirees, and existing and new investors differently? More importantly, how could investors minimise the impact of poor investor behaviour while maximising the opportunity to achieve their long-term investment objectives?

There is little doubt that uncertainty around inflation, interest rate rises, and recessionary risk would continue to influence investment markets and investor sentiment over the course of 2023.

The higher-than-expected inflation data in Australia serves as a reminder that inflationary pressure could stay uncomfortably higher for longer. However, majority of the released data are lagging indicators. Lots of the headline grabbing news seemed to have exaggerated the pessimism by drawing our attention to the past than to where we are at now or to the future.
Market is always forward looking. While we can never predict the future with certainty, we would like to share with you our view of inflation and our outlook of interest rates, and equity and property markets.

To many investors, 2022 has been volatile, uncertain and difficult. 2023 is shaping up to be another interesting year where inflation and interest rates are likely to dominate investment markets as growth slows and economic activities fall. It remains extremely challenging to forecast the forward paths of inflation, economic growth, interest rates, company profits and valuations.

We believe that interest rates are likely to stay higher for longer. If as we expect, 2023 turns out to be the ‘tale of two halves’, we see first half of 2023 will provide investors some opportunities to top up their cash or reserves buckets and to prepare for some possible slowdown into the second half of the year.