Australia stands to benefit from synchronised growth across the world and in China in particular despite the recent market volatility, according to hedge fund asset manager CQS.
Last week’s spike in volatility did not ruffle too many feathers, with the global growth outlook remaining “positive” and 45 OECD countries growing in sync, says CQS chief executive Michael Hintze.
“Australia is well positioned to benefit from Chinese and global growth, in particular China’s One Belt, One Road Initiative and growth in the US,” he said in a statement.
Mr Hintze indicated that although rising interest rates across the world will be closely watched this year, the rate hikes looked to be gradual so as to not hit any “economic vulnerabilities”.
“The RBA will be mindful of the balance between raising rates in a growth environment, consumer indebtedness and consumer confidence, but on balance is likely to raise rates modestly this year,” Mr Hintze said.
At its February 2018 meeting, the RBA elected to keep its cash rate at 1.5 per cent for the 17th time in a row, with AMP Capital chief economist commenting it was “too early for the RBA to consider raising interest rates”.
RBA governor Philip Lowe said on 13 February the central bank would maintain the cash rate until it saw wages growth and inflation pick up.
Specifically, Mr Lowe indicated the RBA is unlikely to raise interest rates until inflation is at the midpoint of the central bank's official target (i.e. 2.5 per cent). The most recent CPI reading was 1.8 per cent.
“If we do make that progress, at some point it will be appropriate for interest rates in Australia to also start moving up,” Mr Lowe said last week.
Mr Hintze added that the “post-quantitative easing environment” would provide active fund managers with more opportunities in the differentiation of valuations.
“While markets are at the richer end of the valuation spectrum, it is a credit picker’s market and there are attractive pockets of opportunity available,” he said.
“In this environment, we favour shorter duration and floating rate assets.”