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Tech, tariff shocks could signal investment cycle end


19 April 2018

House view





With central banks pulling back from years of economic support, markets look more vulnerable, writes ANZ's chief investment office.

As the US central bank continues to steadily raise interest rates, factors such as the recent correction of global high-performing tech stocks, the building political risks of protectionism, and tightening of short-term funding costs are injecting further uncertainty into markets.

These latest developments are worrying investors who see that markets are becoming more vulnerable as we enter the late stage of the ‘investment cycle’.

But right now there appears no cause for any kind of panic. Despite emerging risks, we see that the global economy and markets are still growing fairly solidly and negative forces aren’t strong enough just yet to end the investment cycle we’re now in.

What’s causing market uncertainty

This month we note that short-term funding costs are on the rise across most markets, including Australia, protectionist measures (such as US and Chinese tariffs) continue to build, and we’re seeing a correction in the world’s most profitable and well known tech stocks, the FAANG group: Facebook, Apple,, Netflix and Google (owned by Alphabet).

Share prices of the FAANG group and general information-technology sector has corrected just recently, in part reflecting Facebook revelations and generally lofty valuations.

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FAANG stock performance (March 14 – April 13)

Source: Yahoo! Finance, in partnership with ChartIQ

It’s an interesting story that’s unfolding with those beloved stocks, but of potentially bigger impact is the political risk surrounding tariffs/protectionist moves. The US is threatening to implement tariffs on up to $US150 billion of Chinese goods, while Beijing would retaliate likewise. It’s a situation that could escalate badly. Although to date the overall impact remains relatively modest.

Taken together, all these signs suggest that the upward curve in global growth is peaking.

What’s causing market certainty

As I’ve mentioned, this clear vulnerability in markets shouldn’t send investors running. There’s still an optimistic story in sharemarket returns, despite softening a little recently and the dip in global tech stocks.

We expect share returns should be in the mid to high single digits. We can conclude this because we believe:

  • global growth is still strong
  • financial conditions are far from levels that would normally signal end cycle
  • central banks will only gradually tighten policy
  • the correction is still within bounds of a normal sharemarket correction.

And so, putting all this together, we’re holding ‘neutral’ with an ‘overweight’ bias to growth assets as you can see in the table below.

Investment position
Asset class Position relative to benchmark/outlook1 Strategy positions
Growth assets: Neutral
Australian equities Neutral Expected to continue to perform well.
International equities Neutral Expected to perform relatively well, with good economic and earnings momentum. Risk factors urge caution though.
United States Neutral
Europe Neutral
Japan Neutral
Emerging markets Neutral This asset class has delivered strong returns, but concerns that slower growth in the Chinese industrial sector in conjunction with gradual Fed tightening will become headwinds in the year ahead.
Listed real assets2 Neutral Real estate markets and infrastructure have underperformed on the back of rising interest rates. Earnings are consistent.
Defensive assets: Neutral
Fixed income Underweight  
Australia Neutral Inflation pressures have remained subdued with little pressure to tighten policy. Given high quality of markets and yields being above most markets we expect markets will be supported.
New Zealand Neutral  
International Underweight As bond yields rise, the return on bond investments will be low, although we don’t see a substantial lift in bond yields from current levels.
Cash3 Overweight  
AUD/USD Neutral Global growth will support the Aussie as higher US rates push down. Green back will remain under pressure but eventually strengthen.
NZD/USD Neutral Kiwi is above fair value.
USD TWI Neutral  

"Putting this all together we’re holding ‘neutral’ with an ‘overweight’ bias to growth assets”, Mark Rider CIO

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

2. Comprises of 50/50 split between GREITs (global real estate investment trusts) and infrastructure securities.

3. 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.

As at April 3, 2018.

Read the full Chief Investment Officer House View (PDF 167kB)


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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