24 May 2019
House view
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:
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.
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.
| Asset class | Preference level | Reasoning |
|---|---|---|
| Growth | ||
| Developed equities | Overweight | Valuations across most markets are at fair value although the US is on the expensive side. |
| Australian equities | Underweight | The outlook is improving, shares are fairly valued, but weak credit growth is a constraining force. |
| Emerging-market equities | Neutral | Valuations remain generally more attractive than developed markets. |
| Listed real assets1 | Neutral | Valuations in global listed property are now at the expensive end of fair value. |
| Alternative growth | Neutral | These assets should perform well if volatility were to return in the months ahead. |
| Defensive: fixed income | ||
| International | Underweight | Fixed income has been supported by slowing global growth and the oil price fall. |
| Australia | Neutral | Valuations are moderately expensive possibly reflecting markets shifting to a rate cut. |
| Cash | Overweight | Investors are not being compensated much for holding bonds over cash, so cash is providing a relatively good risk-adjusted return. |
| Currency | ||
| Foreign currency hedge ratio2 | Neutral | Our fair value estimate of the Australian dollar is at US78¢. |
Notes
Equities, fixed income, cash and currency are relative to benchmark.
1. Comprises of 50/50 split between global real estate investment trusts and infrastructure securities.
2. Percentage of developed and emerging-market equities hedged from foreign currency into Australian dollar.
Representative diversified portfolio with 70/30 growth/defensive assets.
As at May, 2019.
Read the full Chief Investment Officer House View (PDF 197kB)
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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