The equity market has defied bearish predictions throughout 2023 as a resilient economy has weakened expectations of recession, according to Jun Bei Liu, lead portfolio manager at Tribeca Investment Partners.
Ms Liu has said that, in other words, the equity market has mirrored Australia’s economy in showing strong footing despite ongoing policy headwinds.
“While it remains too early to determine whether the RBA has finished its rate hike cycle, we think they are close, and it is unlikely that financial conditions get much tighter from hereon in,” she explained.
While Ms Liu acknowledged that Australia is not immune to variable lags and economic weaknesses stemming from previous rate hikes, she said the resiliency of the household sector alongside the labour market suggest that any downturn is not likely to be deep or prolonged.
Consequently, Tribeca has recommended investors to anticipate a resurgence in the Australian economy around mid-2024, along with the likelihood of an earlier commencement of the rate cut cycle.
“While the near-term corporate profit picture is expected to highlight areas of stress (i.e. consumer, housing, resources, construction to name a few) and the market is in an unforgiving mood for disappointment, we doubt the picture is vastly different from expectations which have been softening in recent months,” Ms Liu added.
“Equity markets are forward-looking and see bull markets with long-sightedness which means an improving economy and lower rates into mid-2024 will be the focus by year end.
“We think the market will remain capped by what we know will be a weak upcoming reporting season, but we don’t believe earnings have deteriorated to a degree that suggests meaningful downside outside of a rate and/or inflation shock,” she continued.
Tribeca also projected fluctuations in the equity market in the upcoming months as it swings between a soft versus hard economic landing, closely aligned with the trajectory of international markets. Nonetheless, the firm pointed out that the market has surprised investors before and could do so again.
“But we think out past the next quarter or so, the outlook remains intact, and the equity market has the capacity to surprise investors on the upside,” Ms Liu concluded.
However, Patricia Ribeiro, co-chief investment officer of global growth equity at American Century, assured that any major headwinds are expected to begin to ease eventually.
“While we see some encouraging signs for stocks worldwide, we’re not out of the woods. Revised data shows that the Eurozone contracted during the fourth quarter of 2022 and the first quarter of 2023,” Ms Ribeiro explained.
Even so, Ms Ribeiro said that investors have a number of reasons to be optimistic about the second half.
“Repaired supply chains and the Biden administration’s support of ‘strategic industries’ also support an upturn in chip sales. Renewed consumer activity, especially in China and Asia, is helping retailers reduce inventory, increase sales and maintain pricing power,” she added.
