Normalising interest rates, geopolitical risks and “patchy” consumer confidence will be on the horizon for Australian equities in 2018, says Janus Henderson Investors.
According to commentary in a note by Janus Henderson Investors head of Australian equities Lee Mickelburough, 2018 will see “interest rate-sensitive sectors of the market” affected by normalising interest rates.
“Our view is that the retracement of bond prices has generally been a function of the normalising of a number of macro variables, including stronger US growth and a stronger US dollar,” Mr Mickelburough said.
Furthermore, high market valuations and low volatility will create an environment that will see markets continue to be “vulnerable to geopolitical risks”, such as the “political turbulence” created by the election of US President Donald Trump and tensions created by North Korea.
On a domestic front, consumer confidence and business conditions are “likely to remain patchy as the economy transitions away from resources and will focus on opportunities that the transition presents”.
“Sales data from REITs has shown weakness in comparable specialty sales as consumers remain constrained or opt for online shopping alternatives,” Mr Mickelburough said.
“The highly anticipated entry of online retail behemoth Amazon into the Australian market will likely give this trend further momentum.
“Inflation should continue to normalise as commodity prices stabilise and the slack in the labour market is taken up.”
He also pointed to the battery industry as a particular emerging trend that has the “ability to drive structural change” and present opportunities in Australia.
“Many countries including France, UK, Norway, India, the Netherlands, Germany and China have taken significant steps towards moving away from cars with conventional internal combustion engines,” Mr Mickelburough said.