As usual, if you regularly read or watch the news – financial, political or general – it is easy to get a negatively skewed view of the world. And that is before incorporating this weekend’s on-off Kremlin coup attempt by Wagner Group boss Yevgeny Prigozhin.
The most recent statement from the Reserve Bank of Australia did not sugarcoat the challenges facing the domestic economy in the months ahead and reminded the country that “the path to achieving a soft landing remains a narrow one”.
This financial year – which is in its last week – has been characterised by global uncertainty, soaring public debt, high inflation and rising interest rates and fractious local politics.
You could be forgiven for assuming the market would be well down for the year, following the loss we saw in FY22.
If you cast your mind back, the final trading day of FY22 saw the S&P/ASX 200 index fall 2 per cent to close the year at 6568 points while the broader All Ordinaries fell 1.91 per cent to 6746.
It was the third year that Australia’s main sharemarket index had recorded a negative return in the past decade.
But with one week to go in FY23, the S&P/ASX 200 is sitting comfortably around 7100. So barring a major mishap, FY23 looks overall to be a moderately positive one for the stock market.
Safe haven assets and defensive market sectors like utilities, healthcare, consumer staples and gold have all held up well.
The property sector has not performed as strongly – with the hangover from COVID impacting how people work in office spaces and adding to the costs of construction for developers. The increases in interest rates have reduced potential buyers’ borrowing capacity and the prices they are able to pay for houses and apartments.
Next financial year – FY24 – will almost certainly see the Real Estate Investment Trust sector continue to revalue its commercial assets, particularly office towers but also industrial assets.
Dexus (ASX: DXS) announced a $1 billion hit on its assets on Wednesday. The bulk of the devaluation was through the property company’s 32 office properties but also included the trust’s 143 industrial assets. The market has priced in further revaluations from others with the REITs trading well under their current net asset values.
However, Western Australia often has the green shoots that reflect the can-do attitude of our main economic drivers in the resource sector.
Is there a better vote of confidence for what we can expect in the coming decade than Thursday’s decision by Northern Star Resources (ASX: NST) to commit to a $1.5 billion expansion of the Fimiston mill that services KCGM’s Super Pit and Mt Charlotte gold mining operations?
Northern Star acquired half of KCGM, in Kalgoorlie, in 2020 and assumed full control in 2021 following its takeover of junior partner Saracen Mineral Holdings.
Northern Star’s long-awaited announcement on Thursday of the Fimiston mill expansion, from 13Mtpa to 27Mtpa, puts KCGM on a path to become Australia’s largest single-site gold producer.
The three-year construction phase has already commenced with long-lead items ordered, with the expanded mill to be switched on in FY27 and ramping up to ready state operations by FY29.
Northern Star said the mill expansion investment would generate a post-tax IRR of 19 per cent and deliver a 4.6-year payback, based on a gold price of $2,600/oz.
As of yesterday, The Perth Mint priced gold at $2,892/oz, with many pundits expecting the precious metal to head further north.
Coupled with Mineral Resources’ (ASX: MIN) $3 billion Onslow Iron project, which is set to redefine iron ore mining in the Pilbara and ship around 35 million tonnes per year from mid-2024, there are some significant green shoots on the horizon – certainly west of the Nullarbor.
And those green shoots will deliver more than just a shipload of jobs.