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Longer to go in the investment cycle


28 August 2019

House view






US-China trade conflict continues to spook sharemarkets, but financial conditions and policies remain strong, explains ANZ's chief investment office.

The on-and-off again US-China trade war does not appear to have an end date. And the escalating, punishing trade policies between the two countries have increased global fears about an economic downturn.

Just last month we wrote about a ceasefire to the trade war, yet the day after the US cut interest rates to boost its economy, the government imposed further tariffs on China. In response, China allowed its currency to drop and Chinese companies said they’ll no longer buy US agricultural products.

Investors reacted with alarm: share prices dropped from the beginning of August, US Treasury yields tumbled, and the Australian dollar fell to a 10-year low against the greenback.

But ANZ’s Chief Investment Office, while acknowledging that the cycle is advanced, currently has a relatively optimistic view of future market performance and the state of the world economy into 2020. This comes down to the recent rate cut by the US central bank, and the possibility of further stimulus measures, creating better financial conditions for US households, and supporting the overall economy (there are already signs of improvement across the US housing market).

This would likely extend the growth phase of the investment cycle we’re currently in for another year or so.

There are some areas of concern to watch for:

  • Even with more stimulus we expect flat company results into 2020. This isn’t great, but it’s certainly better than recession and the very low to negative yields for bonds and cash.
  • Lower levels of lending in China suggest there’ll be no strong recovery in manufacturing, but it’ll keep muddling along at its current pace.

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ANZ investment strategy positions - August

While we believe a recession is unlikely, we remain cautious of the near-term growth outlook even with more stimulus. In our diversified portfolios, current asset allocation is close to neutral, but with a modest bias towards defensive assets.


Investment position
Asset class Reasoning
Developed equities Valuations in the US are now expensive; Europe is fair value; and Japan and Britain are relatively cheap. Relative to very low bond yields, and with further rate cuts, shares appear more attractive.
Australian equities The domestic outlook is a little better due to rate and tax cuts. Shares are expensive.
Emerging-market equities Better valued than developed markets, but growth prospects look weak due to US-China trade war and high US-dollar value.
Listed real assets1 While valuations in global listed property are now expensive, this asset class generally does well in periods of uncertainty while bonds yields are low.
Alternative growth This asset class adds to diversification and it has less volatility than listed real assets.
Defensive: fixed income
International While fixed income has rallied, rate cuts will see yields drop, with little prospects for them rising anytime soon.
Australia Fixed income has rallied strongly, and valuations are moderately expensive.
Cash Our cash position reflects our slightly defensive stance to growth assets.
Currency: Neutral
Foreign currency hedge ratio2 Our commodity price-based fair value estimate of the currency is at US80¢ but mixed domestic data and a drag from housing remain headwinds.


Equities, fixed income, cash and currency are relative to benchmark.

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

2. Percentage of developed market and emerging market equities hedged from foreign currency into Australian dollar.


Representative diversified portfolio with 70/30 growth/defensive assets.

As at August 2019.

Read the full Chief Investment Officer House View (PDF 196kB)


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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