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.

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.”

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