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Goldilocks consensus premature amid ‘deteriorating’ consumer health: Investment manager

By Jessica Penny
4 minute read

New research has highlighted the potential for a hard landing in the Australian economy despite the prevailing “Goldilocks” outlook, as consumer health deteriorates and growth prospects dim.

While a “Goldilocks” outcome remains the consensus for the Australian economy, new analysis from Martin Currie has shown that a hard landing is still a real possibility.

Specifically, the sense of relief stemming from reporting season results being not as bad as feared” has overshadowed the worsening condition of consumer health and the bleak growth outlook.

Commenting on the firm’s bi-annual reporting season paper, Martin Currie chief investment officer Reece Birtles foresees “more pain ahead”, with the cards in favour of a hard landing starting to mount.


The deteriorating state of the consumer, flatlining retail sales and falling company cashflows are the biggest risks to the downside. And the relief that things were ‘not as bad as feared’ has masked the extent of this deterioration,” he explained.

Notably, Australia’s 2023 real gross domestic product (GDP) reading of 1.5 per cent per annum was the third worst annual reading in three decades – ahead of the 2020’s COVID-19 and 2000 post-tech bubble, but even worse than during the Global Financial Crisis.

According to Martin Currie, the savings rate is the biggest indicator on the direction of consumer health and spending, and therefore the economy.

With the savings rate now almost negative, as Australian consumers are depleting their COVID-induced excess savings, Birtles said the outlook looks increasingly bleak as higher rates and prices further erode the savings cushion.

With these buffers almost gone, the real stress is now likely to show which will also reveal itself in falling cashflows for companies,” he said.

On the other side of the coin, Martin Currie highlighted that this environment will be favourable for Australian stocks with defensive earnings, robust cash flows, strong balance sheets and cost control in sectors like telcos, healthcare, insurance, and infrastructure.

“For some time, we had positioned our portfolios for the hard landing scenario. We have lowered the beta of our portfolios and are focused on companies that can grow earnings and dividends and have lower valuation risk,” Birtles noted.

“Medibank Private is a good example of this, with earnings stability and resilience from a superior industry position, light capital intensity and high cashflow resulting in consistently strong profit margins. We think that defensive inflation protection or stagflation protection is going to be quite important in a hard or soft-landing scenario.”

Birtles added that essential services like Telstra Group and Aurizon Holdings excel in that protection with very resilient volumes and good pricing power, and in the case of Aurizon, inflation-linked returns.

“Under a no-landing, stronger-for-longer growth theme with higher rates, exposures to insurance stocks such as QBE Insurance Group and Suncorp Group do offer positive leverage.

“In all scenarios, we also want to own names such as Worley, which we think has a compelling exposure to the energy transition, with 80 per cent of their new business now in sustainability-type work in resources.”

“We believe that now is the time for investors to evaluate the balance in their portfolios. It is important for investors to be discerning in their stock picking and focus on the companies which have pricing power, resilient volumes, and capacity to manage margins, while avoiding stocks with valuation risk,” he concluded.