skip to log on skip to main content

‘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 Mark Rider.

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.

Learn more about our Investment solutions

Contact us

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.
Australia

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.

Cash

We are neutral between cash and fixed income at present.

Currency
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, Chief Investment Officer

Mark is responsible for delivering an overarching investment strategy, including asset allocation, investment themes, investment manager and product selection and monitoring for ANZ Wealth in Australia. Before joining ANZ in 2013, Mark spent 15 years at UBS and 10 years at the Reserve Bank of Australia, making him a well-recognised and respected member of the Australian investment community.

 

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

You might also like

Longer to go in the investment cycle

28 August 2019

INVESTMENT

US-China trade conflict continues to spook sharemarkets, but financial conditions and policies remain strong, explains Mark Rider.

 

Read more

First US rate cut in 10 years

8 August 2019

INVESTMENT

Mark Rider explains the worldwide fallout from a cut in interest rates by the US.

 

Read more

Before a business sale, decisions matter by the millions

21 June 2019

PLANNING

It can take years to prepare a business for sale. Ben Hurley explains that in the lead up, good decisions really matter.

Read more

Contact us

Request a call back

Provide your details and we'll call when it suits you

Request a call back

   

Email ANZ Private

Email us with your query and we'll reply to you directly.

Send an email

Call us

Speak to the ANZ Private team directly

1800 316 926

We're available weekdays 9:00am to 6:00pm AEST

Find an ANZ Private office

Our locations across Australia

Find an office

ANZ Private Bankers are representatives of Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ), the holder of Australian Financial Services Licence number 234527. This document ("document") is distributed to you by ANZ and may not be reproduced, distributed or published by any recipient for any purpose.

The information provided is general in nature only and does not take into account your personal objectives, financial situation or needs. Please consider its appropriateness to you before making any investment decisions. It should not be relied upon as a substitute for professional advice. For any product referred to above, ANZ recommends that you read any relevant offer document or product disclosure statement and consider if the product is appropriate for you. For products issued by ANZ, these documents are available at www.anz.com. This document is current as at the date of this publication but is subject to change. The document is provided and issued by ANZ unless another author is specified in the document, in which case it is provided and issued by that author. The views expressed are those of the authors only and do not necessarily reflect the opinions or views of ANZ, its employees or directors. Whilst care has been taken in preparing this document, ANZ and its related entities do not warrant or represent that the document is accurate or complete. To the extent permitted by law, ANZ and its related entities do not accept any responsibility or liability from the use of the information. Past performance is not indicative of future performance and any case study shown is for illustrative purposes only. Neither are a prediction of the actual outcome which will be achieved. Some of this information may have tax implications. We recommend that you seek specialist tax advice on how it may impact your tax obligations, liabilities or entitlements.