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Stronger growth is key to sustain rally

18 February 2019

House view










ANZ's chief investment office explains why markets are looking past the slide in growth and earnings.

So far in 2019 the sharemarket has rallied impressively, recovering most of the losses suffered in December last year.

For this rally to continue we need to see fundamental improvement in the various factors that could boost companies’ earnings (probably the most important issue in determining shares’ value).

We aren’t yet seeing that. Instead, the sharemarket rally of the past couple of months is based on three key developments:

  1. US interest rates, based on the US Federal Reserve cash rate, are on hold, with the Fed signalling it will be patient with further increases.
  2. China will continue to stimulate its economy in a targeted manner.
  3. It’s looking more likely the US-China trade war will calm down.

It’s because of these three factors that investors have looked past sliding economic growth and the sharemarket has rallied across January and so far in February.

While US rates are definitely on hold, we are less confident in the final outcome of the US-China trade war or the outlook for the Chinese economy. As a result we remain conscious of the risks these pose to companies’ earnings.

Clear risk to the world economy

We are also cognisant of further downside risks to the growth outlook for company earnings. And this can be seen principally in the European and Chinese economies.

China’s industrial sector is slowing and manufacturing output is suffering. The good news is that the service sector is holding up, suggesting the Sino economy is becoming more balanced and domestic demand is strengthening.

Europe’s economic slowdown is continuing into 2019. This makes it less likely that interest rates will rise there. In our view, rates will likely stay below zero for the time being. The slowing in China, as well as US trade tensions and political uncertainty, add further pressure on the European economy.

ANZ investment strategy positions

To be clear, while we see domestic and international growth slowing, our base case for the Australian and global economy still has a solid outlook, returning to a ‘trend’ level after a number of years of above-trend growth.

And so for now ANZ’s chief investment office will maintain its ‘neutral’ position on growth assets such as shares, and ‘underweight’ to international fixed-interest assets.

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Investment strategy
Asset class Preference level Reasoning
Growth assets
Global equities Neutral Following the recent correction, valuations have moved back to ‘fair value’.
Australian equities Neutral Valuations are fair. We expect equities to perform well given attractive yields.
Emerging markets Neutral Valuations are on the cheap side of fair value. A possibly weaker US dollar and rates on hold there will assist these markets.
Listed real assets1 Neutral Valuations in global listed property have recovered from the recent correction.
Defensive: Fixed income
International Underweight Fixed income has rallied due to slowing global growth and a fall in the oil price.
Australian Neutral Moderately expensive in value. Inflation expectations are subdued compared to the rest of the world.
Cash2 Neutral  
AUD Neutral At its current level, the Aussie is below fair value.


Equities, fixed income and cash are relative to benchmark. Currencies are relative to an absolute return outlook (short term).

1. Comprises of 50/50 split between GREITs and infrastructure securities.

2. Cash is the balancing asset class. Cash is a residual to Portfolio Manager’s overall implementation of other asset class strategies. It continues to form part of the overall defensive asset allocation, with PMs having flexibility in terms of how to implement the stated defensive asset strategy across fixed income and cash.  In the RIC model cash overweight to facilitate an underweight position we hold in international bonds and to manage overall fund duration.

Read the full Chief Investment Office House View (PDF 140kB)


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.


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

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