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Near-term outlook remains bleak


25 May 2020

House view






Global share markets staged an impressive recovery in April, but ANZ’s Chief Investment Office identifies some emerging concerns that may impact global growth.

Share markets around the world bounced back in April, driven by massive stimulus packages from governments and central banks. The low number of new COVID-19 cases and hopes for a vaccine also boosted investor confidence.

However, the ANZ Chief Investment Office pointed out that a bleak economic scenario remains in the background. For example, the US reported a GDP fall of 4.8% (annualised from the previous quarter) with unemployment hitting 15%. The Eurozone is also showing similar weak economic data with France reporting 40% of the workforce working reduced hours.

Overall, the Investment Office expects most countries will likely hit the low economic point in the second quarter of 2020 then recover slowly. Here are some initial high-level estimates:

  • US GDP expected to decline 9% for Q1 2020
  • US Federal Reserve’s balance sheet to surpass US$10 trillion by the end of 2020
  • US budget deficit to rise to 18% of GDP
  • Eurozone budget deficit to rise to 7.5% of GDP

In a year when economic normalisation is expected to be slow, global GDP is expected to fall by 2.6%. And this core scenario relies heavily on the assumption that there will not be a second wave of virus infections in major industrialised countries.

In the short term, key risks are US-China trade tensions and a possible significant second wave of COVID-19 cases, which will set back economic recovery.

As more countries re-open their economies, there is still the question around the level of consumer demand and when it will pick up. Business and consumer behaviour will likely remain cautious until a virus cure is found.

Equity markets are expected to fall back after the strong recovery and the potential of further setbacks can’t be ruled out.

Investment outlook in brief

Overall, we maintain a small underweight position to growth assets in the discretionary portfolios, where we have reduced exposure to the Australian dollar, domestic equities and global hedged equities.

We remain on the sidelines for emerging markets and we will continue to monitor the economic recovery across the globe.

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ANZ investment strategy positions - April

Investment position
Asset class Reasoning
Growth Assets We maintain a small underweight position on growth assets due to ongoing concerns around the US-China trade tensions and economic headwinds.
Developed equities We see significant downside risks persisting in developed market equities. Weak earnings, slow economic growth forecasts and ongoing COVID-19 cases will likely lead to more falls.
Australian equities We remain underweight Australian equities due to high relative valuations and a subdued outlook for the market’s key sectors including Financials and Resources.
Emerging-market equities We have removed our preference for emerging market (EM) after strong outperformance of China. We remain on the sidelines for the time being.
Listed real assets1 There has been significant underperformance from REITs compared to global equities. We see strategic opportunities in listed infrastructure given lower for longer rates and potential support for infrastructure spending.
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 We have moved to an overweight position on global fixed interest and cash. While yields are low, this will protect the downside in the event of a further sell-off in equity markets. Long-term bond holdings remain one of our preferred diversifiers in volatile markets.
International fixed income US Treasuries continue to be a powerful diversifier in our portfolios. And while yields are low, they remain a worthwhile hedge for risk.
Australian fixed income Australian bond yield spreads have narrowed further and we will look to reduce our mild overweight position once markets stabilise.
Cash We have moved to a slight overweight position on cash to protect downside in our diversified portfolios.
Foreign currency hedge ratio2 We have reduced our Australian dollar (AUD) hedge ratio for global equities due to the downside risk outlook for the local currency.



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 May 2020.

Read the full Chief Investment Officer House View (PDF 338kB)


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