We’re holding neutral on shares, despite an increasingly positive global outlook, says Mark Rider.
Reassurance is the continuing, but stronger, theme for investors this month as a number of factors come together to sustain the positive global outlook.
The world over, inflation remains below the target that central banks consider best for their economies, which means they’ll continue to be cautious in increasing interest rates to not inhibit economic growth.
This sense of stability has meant the Australian dollar has recently jumped in value as have local shares. The other force driving that is investors’ positive impression of China’s economic growth, with recent data allaying fears over prospects for the Sino economy.
As we’ve previously noted, Europe remains the world’s strongest growth spot and the US economy continues to consolidate. For Australia, given all these factors, the outlook is more positive than it has been recently.
The world economy and markets have been recovering for nearly 10 years from the global financial crisis, and at such a stage we’d expect stronger economic and business activity, in the form of wage growth and company mergers, than we’re seeing right now.
On that note, sharemarkets remain highly valued, though we’re not overly concerned about that given the calm steady-as-she-goes sentiment among investors and stable business performance.
But risks do remain in the:
1. sharemarket's rapid increase in value this year
2. peaking earnings from companies across most regions
3. sheer buoyancy of financial conditions at a stage we wouldn’t expect
4. slow growth in Chinese credit
5. high valuations across asset classes.
As noted in recent months, Australia has lagged the strengthening global outlook.
Our downshift in consumption and wages has been a principal reason for this, but we are now seeing signs of greater local stability.
Further good news for Australia is that our shares, unlike most sharemarkets that carry overly optimistic earnings expectations, have already experienced a significant earnings downgrade.
Investment position at August 2017
|Asset class||Position relative to benchmark/outlook1|
|Growth assets - equities||Neutral|
|listed real assets2
1. Equities, fixed income and cash are relative to benchmark. Currencies are relative to an absolute return outlook (short term).
2. Comprises of 50/50 split between GREITs and infrastructure securities.
3. Cash is the balancing asset class.
You can read the full House View report from ANZ’s Chief Investment Office here.