In a Morningstar economic update, it was found that while the S&P/ASX200 returned 4.9 per cent in October, investors are still out of pocket on a year-to-date basis, with a capital loss of 7.2 per cent.
The financials sector, despite recent capital-raising by Westpac, was up 4.6 per cent for the month to date. Consumer discretionary shares were also up 5.2 per cent, staples 5.0 per cent and industrials up 3.3 per cent.
Resources stocks benefited from less focus on China and emerging markets, with the S&P/ASX300 metals and mining index up 13.5 per cent in October. However, Morningstar noted that this is still down 17.6 per cent on the sectors opening year level.
“Provided that China does not re-emerge as an issue to deter investors, Australian equities could benefit as the economy picks up from its extended period of sub-par growth," the update said.
Moreover, Morningstar noted that the RBA's assessment of the Australian economy was more “upbeat” in October.
According to Morningstar, the RBA said there is further evidence of rebalancing the economy away from resources activity. This is being supported be a depreciating Australian dollar.
The RBA also said conditions in the labour market have strengthened over recent months.
Morningstar said the unemployment rate held steady at 6.2 per cent in October, with an improvement in businesses’ willingness to hire likely to result in an improvement in the unemployment rate in coming months.
“Although it is still not definitive, the evidence is accumulating that the domestic business cycle may be picking up strength,” the update said.
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