Monthly Market Update - May 2024

Market Data May 2024

Market Returns - 1 Month to 31 May 2024 (in AUD)

Market Commentary

After falling in April, May was a positive month for equity, albeit with some volatility and a weaker finish. The month started strong, with markets fuelled by optimism about potential interest rate cuts from the U.S. Fed (ironically due to a softening US economy) and fairly robust corporate earnings. However, as the weeks progressed, persistent inflation concerns and mixed economic data tempered the initial enthusiasm, leading to a more subdued performance towards the end of the month.

In Australia, the S&P/ASX 300 gained 0.9%, with the S&P/ASX 100 rising 1.0% and the Small Ordinaries remaining flat. The technology sector was the standout performer, surging 4.5%, while financials (+2.6%), utilities (+3.4%), and REITs (+1.9%) also outperformed. On the other hand, energy (-0.4%), consumer staples (-1.0%), and telecom (-2.8%) sectors posted declines.

Internationally, developed markets, as measured by the MSCI World ex-Australia index, rose 2.0% in AUD terms and 4.0% in hedged terms. The US S&P 500 was a notable performer, gaining 5.0% for the month, driven by strong corporate earnings and the ongoing AI-related boom. European markets also fared well, with the Euro Stoxx 50 climbing 2.4% and the German DAX rising 3.2%. However, emerging markets struggled, with the MSCI Emerging Markets index falling 1.8% in AUD.

In the fixed-income space, Australian bonds delivered a modest 0.4% return, slightly outperforming global aggregate bonds, which rose 0.8%. Global credit (+1.3%) and high yield (+1.0%) also posted gains for the month. Listed property and infrastructure were among the best-performing asset classes, with global REITs rising 2.8% (unhedged) and 3.3% (hedged), and global infrastructure surging 4.3%.

Commodities had a mixed month, with gold rising 1.8%, while the broad S&P GSCI index fell 2.2%, largely due to a 6.0% decline in oil prices. The Australian dollar strengthened against the US dollar, appreciating by 2.8% throughout the month.

Australian Equities

The ASX 200 rose 0.9% in May, materially lagging the strong rebound of +4.3% in US equities led by the Technology sector, which continues to benefit from robust earnings growth. While Technology was the best-performing sector in the ASX 200, it was the significant weighting of the Banks (+78bps) that contributed much of the Index return.

At a portfolio level, BHP, Goodman Group (GMG), and Macquarie Group (MQG) were notable strong performers. In contrast, James Hardie (JHX), Spark NZ (SPK), and Ramsay Health Care (RHC) weighed on performance. GMG continued to be buoyed by the secular growth story of data centres and AI. By contrast, the underperformance of the portfolio was largely driven by a sharp sell-off in SPK due to SPK lowering its FY24 guidance by ~3.5%, and primarily it was a one-off impact of the change in NZ’s weighting in the MSCI Index that led to its recent share price weakness.

Our portfolio remains focused on companies with competitive positions and robust balance sheets, capable of generating earnings momentum in an environment where bond yields stay elevated for longer. As we navigate through 2024, our investment strategy is anchored by both current market dynamics and our long-term outlook. A theme of focus is the requirement for decarbonisation and energy transition in a world with increasing demand for resources and energy. We believe energy and resources stocks remain attractive, buoyed by increased demand for resources as the world advances with cleaner energy and technological innovations. Several dynamics in the commodity space bolster this view, including the tightness in supply due to disinvestment and how the imbalance draws higher prices to attract further investment during the transition. We remain invested in base metals including high-quality Iron Ore, Copper and Lithium to meet the burgeoning demand for green steel and electrification. As governments globally implement policies to reduce carbon emissions, the demand for these minerals will continue to rise given their essential role in the global transition towards a sustainable future.

Our recent initiation in Origin Energy (ORG) reflects our strategic focus on utilities essential for supporting increased demand for power. As the incumbent electricity provider in Australia, ORG is well-positioned to drive future energy innovation. The AI sector’s thirst for electricity is reshaping power consumption patterns and grid reliability, pushing utilities to extend the operational life of traditional power plants while integrating more renewable energy sources. The delayed closure of the Eraring coal-fired power station underscores the critical role of reliable power sources in balancing increased demand with decarbonisation efforts. With the development of the Virtual Power Plant, ORG plans to grow its renewable generation capacity to 4GW by 2030.

While the prospect of easier monetary policy and fiscal policy (including 1st July tax cuts) should help underpin spending, economic growth remains subdued with the annual growth in Australian GDP at an anaemic 1.1%. Notably, it is the slowest rate of annual growth in GDP in 3 decades excluding the pandemic period. Undoubtedly the start of the interest rate easing cycle being delayed has had a harsh impact on cyclical sectors exposed to discretionary spending and housing. With this in mind, there is a risk that a cyclical recovery in earnings could be delayed, highlighting the requirement that the portfolio’s exposure should be skewed to companies that exhibit earnings and balance sheet resilience.

Defensive Income

With little change to economic data and subsequently underlying forecasts, fixed-income markets were relatively stagnant in May both locally and Stateside. Versus the start of the month, the US 10-year yield ground tighter to close May at 4.51% from 4.69%. In Australia, the 10-year finished 1 basis point tighter at 4.42%. The subdued movements in treasury markets built the foundation for steady returns across the majority of fixed-income indices. The Global Aggregate Bond Index (LEGATRUU) rose 1.31% for the month while the AusBond Composite increased by 0.39%. This outperformance by the Global Agg Index is reflective of the stronger duration performance in the US despite the lack of material economic news. Australian interest rate futures markets are flat for 2024, with the first full cut baked in for May 2025. In the US, markets believe there is a 4-in-5 chance that the first-rate cut will happen at the Fed’s November meeting. Domestic credit had yet another strong month, with the AusBond Credit FRN (BAFRN0) Index producing +0.50% for May.

After several months of AT1 spread compression, spreads in the BondAdviser All AT1 Index widened from 187bps on 1 May 2024 to 237bps at the end of the month. While this is a big move, spreads in the space remain well below the Index’s medium- and long-term averages. The BondAdviser All AUD AT1 Index returned -0.75% for May. The opposite happened in Tier 2 markets whereby our All AUD T2 Index closed the month at a spread of 146bps, 12 basis points tighter than it started in May. Tier 2 spreads have trended gradually lower for the last 18 months, peaking in November 2022 at 257 basis points. The BondAdviser All AUD Tier 2 Index returned +0.68% for the month. The Prime Australian Defensive Income Portfolio’s +0.54% return in May was a reflection of strength across the board despite weakness in some smaller holdings. The Portfolio is ahead of its benchmark at each timeframe in Figure 2 as the Bloomberg Bank Bill Index produced +37bps in May.

International Equities

• The Prime International Growth Portfolio returned 1.6% in May 2024.  

• Over the month, investment markets experienced a mixed performance on the backdrop of a complex landscape with mixed economic data, geopolitical tensions, and shifting market sentiment. While some regions and sectors showed resilience, others struggled to maintain momentum amid ongoing uncertainty.  

• The Munro Concentrated Global Growth Fund (5.3%) was the top contributor, benefiting from its exposure to companies with strong growth prospects and innovative business models. However, the Platinum Japan Fund (-3.1%) was the largest detractor, as its defensive positioning and value-oriented approach lagged in the current market environment.  

• The iShares Europe ETF (2.0%) outperformed the iShares S&P 500 ETF (0.7%), reflecting the relative strength of European markets compared to the US during the month.  

• The Trinetra Emerging Markets Growth Trust (-2.6%) and the Aoris International Fund (0.2%) underperformed the benchmark, reflecting the challenges faced by emerging markets and the Aoris' quality-oriented approach in the current market conditions.  

• On a positive note, the Langdon Global Smaller Companies Fund (3.5%) outperformed the benchmark, highlighting the ongoing resurgence of small-cap stocks as they continue to narrow the performance gap against their large-cap counterparts.

If you would like further details on Prime’s Separately Managed Accounts (SMA), please contact your friendly adviser or our client services team via e-mail at


Mark Johnson
T: (03) 8825 4738
Marcus Ainger
T: (02) 9134 6292
Brent Quinn
T: (03) 8825 4705
Livio Caiolfa
T: (03) 8825 4748
Gina McIntosh
T: (07) 3557 2557
Jarrod Rodda
T: (03) 8825 4729
Nicole Lewis
T: (03) 8825 4734
Dylan Cresswell
T: (03) 8825 4707
Dylan Mayes
T: (03) 8825 4742

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