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Global slowdown sets scene
for defensive action


24 September 2018

House view





ANZ's chief investment office explains why it is important to balance supportive near-term signals against the headwinds which it expects to strengthen through 2019.

Mixed signals are emerging in the global economy depending on the time frame being monitored. The near-term positive signals need to be carefully balanced with the longer 12-month signals that are pointing to slower growth and returns for 2019.  However, even the emerging headwinds remain well short of triggering a recession signal that would justify a large shift to defensive positions. But continued trade tensions, tighter US monetary policy and a strong US dollar are likely to weigh on markets and economies.

The pace of the US Federal Reserve’s rate tightening is a key risk for global economies. However, what is positive is the confirmation from Fed Chair Jerome Powell that there is considerable uncertainly attached to the underlying economy and the Fed will monitor the data flow and the possible impact of the trade war rather than automatically raise rates.

This is important because if the trade war is further ratchetted up it could start to have a major impact on the global outlook. If these concerns build the Fed may put rate rises on hold as they approach the neutral rate of around 3 per cent. 

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China’s slowing credit growth

China is another risk and warrants close monitoring. The world’s second-largest economy is experiencing a sustained slowing down in credit growth. This is significant for a number of reasons.

Our analysis shows a slowdown in credit growth traditionally has a strong lead of around 12 months or so on production growth both in China and globally. As a result, we expect global momentum to slow in 2019 under the weight of higher US rates and tighter China credit.  A further escalation of the trade war would add to these headwinds. 

Australia’s leading indicators are consolidating the recent lift in momentum with concerns about the trajectory of housing the main medium-term concern.  If the global risks that are building in 2019 were to escalate this would add to the headwinds from housing.

Pulling these strands together we continue to hold a broadly neutral position to most asset classes.  However, if the storm clouds that are gathering were to intensify more, a defensive position would be justified.

ANZ investment strategy − September 2018

Investment strategy
Asset class Preference level Reasoning
Growth assets
Australian equities Neutral We expect relatively good performance, with good but easing economic and earnings momentum. 
International equities Neutral Offer an attractive yield and can continue to perform well relative to bonds. 
Emerging markets equities Neutral Growth momentum has eased across emerging market economies, with more challenges to come as the US raises rates.
Listed real assets1 Neutral Valuations are relatively attractive relative to shares, with consistent earnings and fundamentals supportive.
Defensive assets
Australia Neutral We expect low but positive returns, with rising interest rates overseas and steady rates locally.
International Underweight Corporate bonds will struggle as leverage increases and the investment cycle matures.
Cash2 Neutral  
AUD Neutral Solid but easing global growth will remain supportive.  


Equities, fixed income and cash are relative to benchmark. Currencies are relative to an absolute return outlook (short term).

1. Comprises of 50/50 split between global real estate investment trusts and infrastructure securities.

2. Cash is the balancing asset class. 

As at August 2018.

Read the full Chief Investment Office House View (PDF 146kB)


Mark Rider, former Chief Investment Officer

Mark brought over 30 years of investment market experience to ANZ, having previously worked at UBS and the Reserve Bank of Australia. During his seven-year tenure at ANZ Mark was responsible for and contributed to the overarching investment philosophy, investment strategy and asset allocation of ANZ Private Banking.


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