According to a recent analysis from VanEck, Australian equities are expected to continue to outperform global equities this year.
Arian Neiron, chief executive and managing director at VanEck Asia-Pacific, said Australia is better positioned to manage economic headwinds in 2023 than most countries.
“Australia also has abundant natural resources in short supply globally, and with borders reopened, we expect the return of immigration to offset labour inflation,” he said.
“We favour resources, REITs and consumer staples, are neutral on banks and underweight consumer discretionary. This dynamic bodes well for taking an equally weighted approach to Australian equities.
“With mortgages being mostly variable, we expect a quicker transmission of monetary policy to the economy. We forecast the RBA cash rate to peak at 3.85 per cent with the Australian 10-year yield to remain around the current 4 per cent level, and we may see an inversion of the curve, which could support bond proxies like REITs, infrastructure and utilities.”
2022 saw both Australian equity and bond markets down for the first time since 1994, with VanEck pointing to multi-decade high inflation and central bank rate rises, the Russian invasion of Ukraine and China’s COVID-zero policy as the three major factors.
Largely due to the Q4 resource rally and Australia’s higher value exposure relative to other countries’ equity benchmarks, Australian equities were one of the better-performing equity markets in 2022. Australian resource stocks also rallied recently on the back of optimism over China’s reopening.
“Chinese President Xi Jinping has cited infrastructure spending as the government’s main lever to rescue economic growth. The Australian resources sector could be a major beneficiary of this investment, as it was during the GFC,” Mr Neiron said.
“The reopening of a country with 1.4 billion residents offers investment opportunities, particularly within Australian sectors that have high revenue exposure to China.
“We see Australia being the lucky country again in 2023, with Australia likely to avoid recession. 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, aka ‘hard landing’, will be easier relative to other nations.
“The majority of Australian mortgages are variable, which means cash rate increases immediately impact budgets and corresponding spending. This allows the RBA, if warranted, to pivot and impact the economy faster based on changes in inflation.”
According to the latest VanEck Australian Investor Survey, 70 per cent of investors planning to start or increase their allocation to Australian equities. One in two investors indicated ETFs are their preferred investment product, while 57 per cent plan to start or increase their allocation to ETFs in 2023.
In December 2022, VanEck launched the Gold Bullion ETF on the ASX, where investors are able to convert their NUGG holdings into physical gold at The Perth Mint.
