Week in review

• Australia’s economy expands by 0.8% y/y in 3Q ‘24
• China manufacturing PMI improves to 51.5
• U.S. job openings rise to 7.744 million

Week ahead

• RBA official cash rate announcement
• U.S. CPI inflation
• Australia labour market report

Thought of the week

The Australian equity market is up 15% so far this year, including dividends, and has closed the gap on international equity markets. However, it still can’t match the 37% plus return from U.S. large cap in AUD terms for the same period. Should investors expect a narrowing of this performance gap in 2025? Probably not. The bulk of the Australian equity return has come from a valuation re-rating as the contribution from earnings expectations has declined. Earnings expectations for Australia remain soft and further valuation uplift is unlikely to be repeated next year. Contrast this with the U.S., where the contribution to returns has been more evenly shared across an improving earnings outlook and rising valuations. With higher equity valuations across many equity markets, the earnings outlook will be the dominant factor for equity performance.

Australia equities running well ahead of expected earnings growth

Year-on-year change

Source:FactSet, Standard & Poor, J.P. Morgan Asset Management. Data reflect most recently available as of 06/12/24.
All returns in local currency unless otherwise stated.
Equity price levels and returns: Levels are prices and returns represent total returns for stated period.
Bond yields and returns: Yields are yield to maturity for government bonds and yield to worst for corporate bonds. All returns represent total returns. AusBond Comp is the AusBond Composite 0+ Yr, AusBond IG is the AusBond Credit 0+ Yr both provided by Bloomberg.
Currencies: All cross rates are against the Australian dollar. An appreciation of the foreign currency against the Australian dollar would be positive and a depreciation of the foreign currency against the Australian dollar would be negative.

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