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Equity prices rise despite headwinds


27 August 2020

House view






Amid rising geopolitical tensions and Covid-19 flare-ups around the world, ANZ’s Chief Investment Office shares their insights behind a cautionary view of the markets.

US share markets continued to rise in July on the back of relatively improved economic data and encouraging corporate results from US companies. But European markets were under pressure due to virus flare-ups and weak economic data throughout the region.

Gold prices rose 10.9% in July – the biggest monthly gain since 2012 – as interest rates dropped across the US and Europe.

Macro data has improved recently and while there are signs of stability across the globe, economic data remains at pre-COVID-19 lows.

While a breakthrough in a Covid-19 vaccine could provide the potential for short-term upside breakouts in some markets we maintain our view that short-term risk remains weighted to the downside.  Why this cautious view?

The continued rise in equity markets despite the weak economic reality supports our mild dislike for risk assets.

A persistent backdrop of US-China trade conflicts that may escalate and could put further pressure on markets.

As we try to balance these seemingly contradictory factors, we see the continuing flow of fiscal and monetary stimulus from governments around the world as critical to providing a floor for share markets in the near-term.

Investment outlook in brief

The strong performance of equity markets in recent months, saw us drift closer to our benchmark positions across portfolios. In late July, we rebalanced our portfolios to a mild underweight position to growth assets.

We have also reduced our underweight position on the Australian dollar but maintain it in our portfolio as a protection for a global equity sell-off.

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ANZ investment strategy positions - August

Investment position
Asset class Reasoning
Growth Assets We maintain an underweight position on growth assets as we see economic headwinds – rising Covid-19 cases and geopolitical tensions – persisting and causing further volatility in the near-term.
Developed equities Downside risks remain in the developed market equities. We have a slight preference for European equities over other developed markets due to their exposure to Cyclicals and Value assets, which saw some rotations in mid-August.
Australian equities We remain underweight Australian equities due to relative valuations and a subdued outlook for the market’s key sectors including Financials and Resources. The second wave of lockdowns in Victoria have stalled economic recovery further.
Emerging-market equities We maintain our neutral position on emerging market equities. Recent outperformance has seen the region fall in our scorecard ranking.
Listed real assets1

A global recession is likely to put downward pressure on rents, with retail and offices expected to be hit harder than residential and industrial properties. REITS remain under pressure, with shopping centres challenged by e-commerce and office spaces suffering from the move to work from home for most businesses.

Alternative growth While we believe the ‘lower for longer’ rates scenario may be supportive of infrastructure, we remain neutral and avoid unnecessary turnover of the portfolio at this time.
Defensive Assets We retain our overweight position on global fixed interest rate and cash. While yields remain low, this will protect the downside in the event of further sell-offs in equity markets. We see rates markets remaining supported as central banks continue their commitment to support economic growth while geopolitical risks continue to gather momentum.
International fixed income We retain a slight overweight position on global bonds. Though yields remain low, they serve as a stable investment diversifier and protection against downside risk.
Australian fixed income We maintain a close to neutral position on domestic bonds as we prefer to stay overweight on other defensive assets such as cash and global fixed income.
Cash We are overweight cash to reduce risk in our diversified portfolios. 
Foreign currency hedge ratio2 We maintain a slight underweight position on the AUD and overweight other developed markets currencies, which should provide protection in the event of a global equity sell-off.



1. Comprises of 50/50 split between GREITs and infrastructure securities.

2. Percentage of developed market and emerging market equities hedged from foreign currency into Australian dollars. Representative diversified portfolio with 70/30 growth/defensive assets.

As at 14 August 2020.

Read the full Chief Investment Officer House View (PDF)


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