We have held QAN in the Focus Portfolio to provide leverage to the travel reopening that we have seen globally over the past 12 months. QAN has performed strongly over the past 6-7 months, with gains of around 50% since the June 22 lows. Despite this, we still believe that QAN presents a well-priced investment opportunity due to its current discounted valuation relative to US peers, while earnings still have the potential to surprise to the upside.

Stubborn inflation, rapid central bank policy tightening and concerns about a potential global recession have created a tough year for financial markets. But with successive better-than-expected inflation prints in the US, the key macro force weighing on markets is now receding as a risk in our view. In our final report for 2022, we examine the key market influences shaping the outlook for 2023.

Australian equities have been resilient this calendar year amidst a challenging macro backdrop. The focus in 2022 has been on equity valuations rather than earnings, however we think there will be a shift in focus towards earnings instead of valuations over 2023.

After a rally extending all the way from 2020’s Covid lows, 2022 has proven to be a difficult year for investors. In this week’s report, we review the key drivers of the market’s sub-par performance in 2022, and we foreshadow the issues likely to affect investors in 2023.

The surprisingly strong acceleration in inflation over the past 18 months has been felt in most corners of the globe. Australia has also felt the impact of this global inflation surge, although not quite as intensely as many comparable developed economies.

There is a very plausible scenario that we are approaching the peak of the global inflation cycle. Central banks will start to turn progressively less hawkish and bond yields will continue to compress further. This should be a key part of Australian equity strategy, as we enter the 2023 calendar year.

While the Australian equity market is down around 3% in price terms year to date, the local market has outperformed global equities, which are down around 11% in AU$ terms for the year so far. In this report, we consider whether Australia has what it takes to continue outperforming global markets in 2023.

The growth outlook of rare earths and other EV minerals is positive in contrast to the outlook for the traditional ASX miners, such as iron ore, where we expect earnings to fall over the next 2-3 years. Therefore, after a successful second bid for OZ Minerals (OZL) at $28.25/share, we have decided to remove OZL (-2%) from the Focus Portfolio in order to lock in profits. We have used the proceeds from OZL to add Lynas Rare Earths (LYC) to the portfolio at 2%.