Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

The great impasse

  •   VanEck
  •   6 April 2023
  •      
  •   

Highlights

Australia the sweetest spot 

  • We continue to expect the RBA to increase the cash rate by 25bps at today’s meeting, to 3.85%.  The labour market and inflation have slowed only modestly meaning additional tightening is still needed.
  • Australia will be the lucky country again – just. While Australia faces some significant risks, China’s policy shift away from COVID zero and the RBA getting a significant amount of tightening in before wages had a chance to take off both mean Australia could avoid a recession.
  • If China can pick up pace and Australia can skirt a property/credit implosion, the Australian dollar could do well, particularly against a sliding US dollar. An easing of China trade sanctions will be icing on the cake.
  • While the housing market and consumer sentiment have looked a little more stable of late, this is still the “phony war” as the impact of rising rates has yet to fully hit households, with more significant impacts likely to be felt from March onward.
  • The Australian consumer staples sector has outperformed its global counterparts by almost 3 per cent over the past quarter reflecting the resilience of the Aussie consumer in the face of 10 consecutive rate hikes.
  • When the RBA does pause rate increases we expect a broad rally. Consumer discretionary names like JB Hi-Fi should benefit as consumers have a bit more breathing room in their budgets.
  • We continue to think investors should focus on liquidity, focus on balance sheets and cash flow and avoid highly volatile and speculative assets. We continue to see support for gold.

Gold is being turbocharged

  • Gold has been playing beach ball under water held down by rising US real rates. But geopolitics, crypto uncertainty and financial fears are now turbo-charging it.
  • Geopolitics is a secular support for gold. The retreat of globalisation, the rise of aggressive blocs of nations and the weaponisation of banking and payment systems has seen a fracturing of the US dollar consensus. In turn, central bank gold purchases have been rising sharply.
  • Recent movements in yields have also been supportive of gold. In the previous three instances when the short end of the US curve fell from its peak, gold prices rose for a sustained period.
  • The market is ignoring the negative effect of sustained higher rates on the global financial system. Interest expense will become a significant problem as record levels of debt across the globe are impacted by higher rates. This increasing debt burden, combined with an economic slowdown and sticky, elevated inflation are supportive of gold prices in 2023 and longer term.

Emerging markets are thriving, not surviving

  • One of the bright spots on global markets over the past few weeks has been emerging markets bonds, particularly selected local-currency bonds, which is almost exhibiting signs that it’s a safe haven asset in the current market environment.
  • Emerging Markets generally have low debts and deficits, independent central banks solely focused on inflation, and benefit from China’s reopening and are well-supported commodity prices.
  • In a world running from unsafe finance to safe finance, EM banks are generally deposit funded, not loan-funded, and have high common equity-to-assets ratios.

Download the full paper

 


 

Leave a Comment:

banner

Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Welcome to Firstlinks Edition 552 with weekend update

Being rich is having a high-paying job and accumulating fancy houses and cars, while being wealthy is owning assets that provide passive income, as well as freedom and flexibility. Knowing the difference can reframe your life.

  • 21 March 2024

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

Latest Updates

Retirement

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

Shares

On the virtue of owning wonderful businesses like CBA

The US market has pummelled Australia's over the past 16 years and for good reason: it has some incredible businesses. Australia does too, but if you want to enjoy US-type returns, you need to know where to look.

Investment strategies

Why bank hybrids are being priced at a premium

As long as the banks have no desire to pay up for term deposit funding - which looks likely for a while yet - investors will continue to pay a premium for the higher yielding, but riskier hybrid instrument.

Investment strategies

The Magnificent Seven's dominance poses ever-growing risks

The rise of the Magnificent Seven and their large weighting in US indices has led to debate about concentration risk in markets. Whatever your view, the crowding into these stocks poses several challenges for global investors.

Strategy

Wealth is more than a number

Money can bolster our joy in real ways. However, if we relentlessly chase wealth at the expense of other facets of well-being, history and science both teach us that it will lead to a hollowing out of life.

The copper bull market may have years to run

The copper market is barrelling towards a significant deficit and price surge over the next few decades that investors should not discount when looking at the potential for artificial intelligence and renewable energy.

Property

Global REITs are on sale

Global REITs have been out of favour for some time. While office remains a concern, the rest of the sector is in good shape and offers compelling value, with many REITs trading below underlying asset replacement costs.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.