As this year has progressed sharemarkets have recovered from last year’s losses as investors anticipate improved economic growth. This optimistic expectation is supported by:
- a pause in US interest rate rises
- China stimulating its economy
- greater confidence of a truce in the trade war between the two countries.
ANZ’s chief investment office believes a base in global growth is forming and there will be some improvement in companies’ earnings, as would be expected in a U-shaped market recovery, which we covered last month.
However, the escalation of the trade war – with markets already factoring in a truce – means if the recovery doesn’t progress as hoped we face elevated risk the nascent recovery will suffer.
We maintain a vigilant focus on these risks, given signs that any recovery would be subdued and that markets are already fairly valued.
ANZ investment strategy positions – May
With global markets around fair value and our economic scorecard still suggesting caution, we hold to our overall ‘neutral’ position towards growth assets such as shares. We lean toward global shares for now given Australia’s housing market and weak wages.
For us to take an ‘overweight’ position on growth assets we will need to see evidence of an established earnings-upgrade cycle for companies. This is particularly the case give the risks surrounding the re-escalation of the trade war. For defensive assets we favour cash investing and are ‘underweight’ international fixed-interest investment this month.