VanEck has predicted which sectors could be the winners and losers in 2023, a year in which it expects higher interest rates and inflation will likely persist.
The firm has recommended an underweight position to the big four banks due to the likely developing pressure on earnings in the coming year.
Portfolio manager Cameron McCormack said that the rapid increase in borrowing costs will be felt immediately by households since most home loans in Australia are variable.
“Higher home loan rates will likely put financial stress on consumers and businesses, resulting in a higher percentage of non-performing loans and a contraction in net interest margins (NIMs),” he said.
“The Australian government will also likely put pressure on the banks to increase deposit rates consistent with the RBA rate change placing further pressure on NIMs. CBA is also one of the most expensive banks in the world based on price-to-earnings ratios, trading at 19x.”
According to Mr McCormack, persistent inflation will be a positive for Australian REITs.
“Commercial leases and contracts in office and logistics typically have inflation-linked annual increases in rents written into the contract, providing inflation protection on income,” he explained.
“We think the likes of Centuria Industrial REIT and Goodman group could do well in 2023. We anticipate industrial REIT cap rates and net operating income to remain sticky as tenants manage excess inventory levels and expand e-commerce channels amid low vacancy rates.”
Meanwhile, as China moves towards reopening and increasing its infrastructure spending, Mr McCormack said that the resources sector could be a major beneficiary as it was in the GFC.
“Chinese President Xi Jinping has cited infrastructure spending as the government’s main lever to rescue economic growth. More than 50 per cent of revenue for BHP, Fortescue and Rio Tinto is attributed to China,” he added.
