The Australian share market gained in value in June, with the All-Ordinaries index increasing 1.8% for the month and closing at 7,401.5 points. The All-Ordinaries index gained nearly 10% (excluding dividends) for the 2022/23 financial year, despite rising interest rates, high inflation, and geopolitical risks.
Global share markets returns were stronger in June, with the United States Dow Jones Index gaining 4.6%, the London FTSE gaining 1.1%, the Japan Nikkei 225 gaining 7.5%, and the Hong Kong Hang Seng Index gaining 3.7% for the month.
A further 0.25% per annum increase in the official Cash Rate by the Reserve Bank of Australia (RBA) Board helped reverse the trend of decline in the Australian Dollar, with the currency gaining 2.9% for the month against the United States dollar, with 1 Australian Dollar currently buying 66.7 United States cents.
The RBA Board has now delivered twelve increases in official the Cash Rate over the past thirteen months, with the official Cash Rate now standing at 4.10% per annum (a level not seen in over a decade as highlighted in the chart below).
While increases in the Cash Rate are designed to curtail high inflation, the full impact of interest rate increases remains to be seen for the broader Australian economy. This is because around 880,000 fixed rate home loans were written at rock-bottom interest rates from 2020 to 2021. These will switch to much higher variable rates once the fixed rate term ends.
According to the RBA, about $350 billion (or approximately half of all fixed rate mortgages) expire in 2023 with the remainder to expire in 2024 and beyond. This is what is sometimes referred to as the “mortgage cliff”.
Despite a recent rebound in property prices, the so-called mortgage cliff is certainly something to consider when allocating client investments – as it would not be a “shock” to see increased mortgage defaults in Australia over the coming months.
For more information, please contact Ryan Love on 1300 856 338.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation, and investment objectives.