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Markets look to global re-opening as uncertainty remains


23 April 2020







With most countries in lockdown due to coronavirus, there continues to be uncertainty for global markets and investors as they look to global re-opening.

Coronavirus continues to be the focus for markets and investors as most of the world has been in lockdown for the past several weeks. As the US announces intentions to re-open its economy, uncertainty may linger in the short term until a sustained recovery can set in.

In the meantime, the oil price war between Saudi Arabia and Russia has added to investor concerns. While OPEC+ has reached an agreement to cut some production, oil prices remain under pressure due to low global demand.

We currently assume that existing lockdowns will continue into May and beyond. We expect the re-opening (of economies) will take place in small gradual steps.

Based on initial estimates on the impact of the virus globally, the ANZ chief investment office anticipates that the Eurozone and the US economies could contract around 3%-5% this year.

And with still more question marks and unknowns, our investment team highlights the need to focus on the long-term issues of debt levels in different countries and the outlook for inflation and yields.

In the short term, the virus remains the focus as countries stay the course in combatting its spread.

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Investment outlook - in brief

We maintain a mild underweight position on growth assets and keep our preference for emerging market equities over developed markets. Based on our base case scenario, our strategy is to adhere to a conservative approach – not to chase temporary relief rallies – and instead wait for better entry points once confidence and recovery are more stable.

Despite the short-term risks in developed market equities, we maintain our slight preference for US shares given their quality and structural growth potential.

On the other hand, given the Australian share market’s heavy exposure to the Financials and Resources sectors – which may be adversely affected by lingering low-interest rates and commodity prices – we remain underweight in Australian equities.

Our preference for emerging markets (over developed markets) is based on the positive outlook for China and its ability to rebound after the COVID-19. Given China’s willingness to stimulate its economy and its prospects for recovery, we maintain a slight overweight position.

We continue to hold alternative growth assets at benchmark as they have been shown to be a valuable diversifier during extreme market conditions.

Despite yields on fixed-income assets remaining very low, we continue to hold them above benchmark weight as they provide a good risk hedge value. As we continue to monitor market movements, we will look to reduce our holdings once markets stabilise.

We maintain our underweight position on the Australian dollar given it’s a risk currency and has the tendency to fall during equity market sell-offs.

ANZ investment strategy positions – April

Investment position
Asset class Assessment
Growth We maintain growth assets on a mild underweight range in our discretionary portfolio due to persisting market volatility. We prefer not to chase temporary relief rallies and will instead wait for better entry points once confidence and recovery are more stable.
Developed equities Short-term risks to the downside persist within developed market equities. We maintain our slight preference for US equities given their quality and structural growth capacity.
Australian equities We remain underweight Australian equities given their heavy bias towards the Financials and Resources sectors which tend to be affected by low-interest rates and commodity prices.
Emerging-market equities Our preference for emerging market (EM) equities is based on the positive outlook for Chinese equities. China’s ability and willingness to stimulate its economy after COVID-19 is also a major factor.
Listed real assets1 We have seen significant underperformance from REITs compared to global equities. Though valuations look more reasonable, some parts of the sector may face more challenges ahead. We remain neutral.
Alternative growth We maintain a benchmark position on alternative growth assets as they can add to diversification. Given their lower volatility (vs listed real assets), they’re an effective diversifier during extreme market conditions.
Defensive assets (fixed income and cash) We maintain a mild overweight on defensive assets.
International Whilst yields are very low, US Treasuries have been the most powerful diversifier in our portfolios in the last few weeks. Though we have moved to a slight overweight position, we look to reduce this once markets stabilise.
Australia The fragile domestic economy remains supportive of maintaining a slight overweight to Australian bonds.
Cash We maintain a close to benchmark position on cash as we see it as an important risk mitigation measure.
Foreign currency hedge ratio2 We have retained our underweight Australian dollar hedge ratio. As a risk currency, AUD tends to fall in equity market sell-offs.

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 April 2020.


Read the full April 2020 House View (PDF 962kB).

To discuss what this insight could mean for you, talk to your ANZ Private Banker directly, or contact us below.

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