Australian shares to defy choppy economic outlook for now
The Australian economy has lost some of the momentum it was building in late 2013 according to the latest Investment Outlook Report (Australia) from van Eyk.
The investment research house attributes the economy’s current condition to a combination of factors including a weaker Chinese economy and falling commodity prices, and the RBA’s decision to leave interest rates on hold since August 2013. “A stubbornly high AUD has probably not helped.”
But it’s not all doom and gloom with the ANZ-Roy Morgan Consumer Confidence Index rising by 2.4% in the week ending July 27, pushing it back up to pre-Federal Budget levels. ANZ Chief Economist Warren Hogan said: “ANZ-Roy Morgan Consumer Confidence is now back to pre-Budget levels and consistent with moderate growth in consumption and economic activity.” The ANZ economist believes the headline impact of the Budget appears to be temporary and the more enduring features of the economy, such as rising share and house prices, job creation are now starting to support consumer attitudes to spending and finances.
On the global front, van Eyk says fears of a US double-dip recession, US tapering and a resulting loss of confidence in emerging markets, as well as continued concerns over the Eurozone are all playing on investors’ minds.
As a consequence, the Australian market has been following an upward global trend. “None of the downside scenarios that have exercised minds over the past couple of years have yet come to pass, however risks remain such as rises in global oil prices as a result of the conflict in Iraq. Following two years of rising equity markets, valuations are now looking full and any downside surprises in the global economy could significantly impact equity markets,” warns van Eyk
That said, van Eyk is retaining its preference for equities over bonds and favours international equities over Australian equities. “This month, we retain our neutral position on Australian equities.”
Frequently Asked Questions about this Article…
The Australian economy has lost some momentum since late 2013, influenced by factors like a weaker Chinese economy, falling commodity prices, and the RBA's decision to keep interest rates unchanged since August 2013.
The Federal Budget's impact on consumer confidence appears to be temporary, with the ANZ-Roy Morgan Consumer Confidence Index rising by 2.4% to pre-Budget levels, indicating moderate growth in consumption and economic activity.
Australian investors are concerned about a potential US double-dip recession, US tapering, loss of confidence in emerging markets, and ongoing issues in the Eurozone, which are influencing the Australian market's upward trend.
A stubbornly high Australian dollar (AUD) is seen as a challenge because it may not be helping the economy, especially in the context of a weaker Chinese economy and falling commodity prices.
Van Eyk maintains a neutral position on Australian equities, preferring international equities over Australian ones due to full valuations and potential global economic risks.
Rising share and house prices, along with job creation, are starting to support consumer attitudes towards spending and finances, contributing to moderate growth in economic activity.
Potential risks include rises in global oil prices due to conflicts like the one in Iraq, which could significantly impact equity markets if downside surprises occur in the global economy.
Van Eyk prefers equities over bonds because, despite full valuations and potential risks, equities are seen as more favorable given the current economic conditions and trends.
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