Australia could dodge a bullet in '23. Via Getty
VanEck: It appears the ‘Lucky Country’ is about to get a whole lot luckier
Experts
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- Australia better positioned than most to manage economic headwinds in 2023
- VanEck expects improving relative performance from small cap and mid cap stocks
- Survey: local investors likely to stay local
A fair bit of good news here, so hold onto your Akubras ladies and gents.
VanEck Asia-Pacific CEO and managing director Arian Neiron reckons Australia is – on balance – much better positioned than most to sail past the likely global economic headwinds of 2023.
“Australia has abundant natural resources in short supply globally and with borders reopened we expect the return of immigration to offset labour inflation,” he said.
Nice. It gets better.
For the year ahead, Neiron forecasts Aussie equities will continue to outperform global equities.
Best of all: He said look out for an “improving relative performance” from small cap and mid cap stocks.
All up: It’s “a dynamic that bodes well for taking an equally weighted approach to Australian equities”.
And Van Eck aren’t alone in this. In fact, Australian equities are shaping up to be the go-to destination for investors in 2023 supported by several tailwinds which will continue to see the local market outperform globally.
As Stockhead’s Josh Chiat notes Goldman Sachs is also bullish on the Aussie resource sector heading into 2023, particularly iron ore and base metals set to profit from China’s reopening.
“We favour resources, REITs and consumer staples, are neutral on banks and underweight consumer discretionary,” Neiron adds.
So what’s on the menu for investment hungry Aussies over the next 11.5 months?
VanEck forecasts RBA cash rate to peak at 3.85%
According to the latest VanEck Australian Investor Survey, the RBA cash rate should peak at a juicy 3.85% with the Australian 10 year yield to remain around its current 4% level.
For sauce, hey, we may see an inversion of the curve which could support bond proxies like REITs, infrastructure and utilities.
According to Neiron 2022 was a really remarkable run with Australian equity and bond markets both down together for the first time since 1994.
That was a result of 3 major themes aligning:
- Multi-decade high inflation and central bank rate rises
- Russian invasion of Ukraine
- China’s Covid-zero policy.
And while every almost every major asset class took a sizeable hit last year, Australian equities offered relative defence.
Australian equity, as measured by the S&P/ASX 200, was one of the better performing equity markets in 2022, with its exposure to resources helping to curb losses to 1% for the year.
Australian resource stocks have rallied over the past few months on China re-opening optimism.
“Chinese President Xi Jinping has cited infrastructure spending as the government’s main lever to rescue economic growth,” Neiron said.
“The Australian resources sector could be a major beneficiary of this investment, as it was during the GFC.
“The reopening of a country with 1.4 billion residents offers investment opportunities, particularly within Australian sectors that have high revenue exposure to China.”
Australia among few to escape recession
Neiron said Australia has lower headline inflation than the US and many European nations. This means the task of the RBA containing high inflation without triggering a recession or ‘hard landing’ will be easier relative to other countries.
Before the covid-19 recession, Australia held the longest streak of avoiding recession in 28 years among developed nations.
The nation avoided a recession during the 1997 Asian financial crisis, dot com bubble, global financial crisis and eurozone crisis.
It was also the only developed nation to avoid a recession during the GFC, defined as two consecutive periods of negative gross domestic product (GDP) growth, and why Australia is often referred to as the ‘lucky country’.
“We see Australia being the lucky country again in 2023, with Australia likely to avoid recession,” he said.
“The majority of Australian mortgages are variable which means cash rate increases immediately impact budgets and corresponding spending.”
Indeed, Australia’s projected real GDP growth for 2023 is expected to be one of the highest according to the OECD.
Investors looking to stay home in 2023
According to VanEck investor survey, Australian equities are the preferred investment destination in 2023 with 70% of investors planning to start or increase their allocation.
One in two investors indicated ETFs are their preferred investment product, while 57% plan to start or increase their allocation to ETFs in 2023.
