CFS Market Insights: November 2023

Hello and welcome to CFS Market Insights.

So the focus today is what's been happening in the Australian economy.

Australia's CPI number last week was much higher than expected and that's led to the conclusion that we're likely to see further interest rate rises here in Australia.

We're all aware that everyday items are becoming more expensive and that's the real impact of inflation coming through.

The continuation of the RBA's tightening cycle is likely to continue to see knock on impacts, particularly around housing affordability as mortgage costs rise.

And this is being exacerbated by increased immigration. So what does that mean for CFS's positioning? We've been incredibly mindful that inflation data was likely to continue to be volatile.

So we believe that this is not a time to make large calls in investment portfolios. The Investment team will continue to be nimble and look for opportunities, for example, in fixed income and private debt, as we continue to actively manage your portfolios.

So one example of liquidity issues is that the traditional role of fixed income securities in portfolios has been to provide protection against volatility and also provide liquidity. But as we've seen in recent periods, with interest rates rising, those government bonds are not providing the level of safety that we have seen historically.

Now this is not the first time that we've seen fixed income markets be volatile, but we need to go back to probably the 1980s to see similar levels of volatility, as interest rates have risen.

It's in periods like this that the type of securities in fixed income that you hold becomes even more important.

And one of the reasons why we're actively looking at areas like private debt to add to our portfolios to help dampen some of that volatility.

It's this focus on liquidity that allows CFS to be able to take opportunities to invest in particular securities when prices become much more favourable, and allows us to move in and out of particular asset classes easily.

So liquidity is not something that you hear people talk about a lot, but we think that it's going to become increasingly important given the volatility that we're seeing within markets and feeds very much into the proactive and active management approach that CFS takes towards its portfolios.

Thank you very much for watching.

See you next time.