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‘Neutral’ on shares as global
recovery looks more likely


22 November 2019

House view





Just recently, there are several signs that the world economy is improving, explains ANZ's chief investment office.

Signs of stabilisation and possible recovery from declining economic growth has led the ANZ chief investment office to view developed and emerging-market sharemarkets more favourably.

We have moved from our slightly ‘underweight’ position on these assets up to benchmark level, though we note that the values of Australian shares are looking stretched and we remain modestly ‘underweight’.

This is our first change in strategy for a few months, and stems from several optimistic developments in the global economy recently:

  • It looks like we’ve reached the lowest point in the industrial cycle, which means the industrial sector will next enter an upswing. And even though that is likely to be modest, it’s led us to further downgrade the risk of recession in 2020
  • Central banks continue to cut rates. On October 30 the US Federal Reserve cut its funds rate by 0.25 per cent
    (We believe this is the last of the cuts for 2019 as central banks monitor the impact of rate cuts to date)
  • Trade relations between the US and China appear to be easing, which is of great relief to investors the world over
  • There’s less risk of a large drop in company earnings, which support sharemarket performance, though downgrades will likely continue across most markets and sectors.

In response to these developments, shares performed well. In October they surpassed ‘safe’ assets such as government bonds. They’re also valued quite fairly, with European and Japanese shares looking better value than those in the USA, while in Australia they’re becoming expensive.

And it’s not just the sharemarket. The household and services sector in the major economies remains firm, supported by rate cuts. US jobless claims are also stable, showing no signs of a sharp rise, which they always do before recession.

All this means the risks building up through 2019 now look to be easing, making an economic recovery, instead of a recession, more likely as we progress into 2020. And that’s why we’re looking more favourably (at least ‘neutral’) on growth assets such as shares.

We note one area of ongoing risk to this nascent picture of recovery: the US-China trade standoff. While the two parties seem to be working toward resolution, further conflict between them can’t be ruled out.

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Where we stand on investments

We’ve upgraded our exposure to growth assets from a slight ‘underweight’ to benchmark. With expectations of (at best) a modest recovery in growth, bond yields are likely to remain low for an extended period, and as such Australian and international bonds are kept at benchmark. Similarly, while the Australian dollar has strengthened, likely reflecting the early stages of the industrial recovery, we have maintained our benchmark position.

Investment position
Asset class Assessments
Growth equity
Developed equities Valuations are around fair value overall for global shares, with Europe and Japan relatively attractive versus the US.
Australian equities Valuations are beginning to look stretched and are now close to the top of our fair-value range as the market has factored in policy support from tax cuts, lower rates and some easing in lending restrictions.
Emerging-market equities Valuations remain generally more attractive than developed markets. However, more sustained outperformance will depend upon the US-dollar weakening.
Listed real assets1

Valuations in global listed property and infrastructure are now expensive. This asset class generally does well in periods of uncertainty while bond yields are low.

Alternative growth

Held at benchmark, this asset class adds to diversification and it typically has less volatility than listed real assets.

Defensive assets (fixed income)
International Signs that growth is likely levelling out have been a headwind with yields rising as further central-bank easing has been scaled back. Nevertheless, we expect subdued inflation and modest growth to continue to support yields at low levels.

Fixed income has rallied strongly this year, but in line with global yields there has been some lifted local bond yields. But our signals remain ‘neutral’ on subdued inflation and expectation of further rate cuts.


We are neutral between cash and fixed income at present.

Foreign currency hedge ratio2 We need firmer signs of a recovery to emerge to change from a ‘neutral’ position.

As at November 2019.

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

Read the full Chief Investment Officer House View (PDF 970kB)


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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