Rising inflation, energy policy pressures and limited domestic growth are pushing MLC overseas, with global listed infrastructure emerging as a key opportunity.
Domestic energy positioning and the realities of inflation in Australia are prompting MLC to focus on global growth opportunities, according to portfolio manager Anthony Golowenko.
Speaking to Investor Daily, the firm’s managed account strategy lead said that while there are opportunities in Australia, these risks are pushing the firm to look increasingly offshore into both developed and emerging markets.
“There’s a range of profitable companies in Australia, and there’s a range of businesses that generate really strong cash flows. [But] we don’t see a whole lot of growth, particularly in that larger cap space,” Golowenko said.
With the Reserve Bank of Australia (RBA) expected to lift rates at least once or twice more this year, he added that while this could weigh on growth, it could support the Australian dollar, making global investing more attractive on a hedged AUD basis. As of 22 April, the Australian dollar is trading at 72 US cents after surging to a four-year high over the past week.
His comments follow the International Monetary Fund’s (IMF) recent warning that Australia faces slower growth and hotter inflation from Iran war-driven energy shocks.
While war-driven impacts are not unique to the country, Golowenko said Australia is facing a more constrained outlook for inflation than overseas markets, having entered the period already on weaker footing.
Despite “honourable intentions” from the Albanese government around initiatives such as the proposed 25 per cent tax on gas exports, Golowenko noted that the fiscal reality is tight, with constrained budgets and a weak growth outlook. The firm’s downside scenarios also note that Australia remains vulnerable to energy protectionism from other economies if disruption to the Strait of Hormuz continues.
While broader concerns about global growth persist, Golowenko said there is a “world of opportunities” in global markets, particularly around themes such as technology enablement, power and energy security.
In particular, MLC sees the current framework as “really constructive” for global listed infrastructure, having recently built out some more exposure to the asset class on an AUD-hedged basis.
“We funded that in the mid-risk space out of global credit, seeing that there’s a stronger risk-reward potential in global infrastructure.
“Particularly with longer dated cash flows or duration exposure we believe we would be better compensated, tying into the near term, micro near term around the Iran war, but also that macro of AI tech enabled, power generation and energy electrification theme.”
Among emerging market standouts, Golowenko said China’s push for electrification and reduced reliance on diesel makes it particularly attractive, alongside its increased focus on technological self-reliance as laid out in its latest growth targets.
“China doesn’t have the same sort of constraints as some of the emerging Asian countries. It’s very deliberate in what it is seeking to do and how it is seeking to grow the economy,” he said.
Domestic bright spots
At the same time, Golowenko still pointed to a handful of promising Australian opportunities.
With the need for energy security highlighted by the Iran war, MLC recently added to its position in Australian petroleum giant Ampol. Shares in the company rose over 4 per cent on 22 April after the company reported a 10 per cent year-on-year increase in its Lytton refinery production for Q1.
Beyond the initial fuel shock beneficiaries, Golowenko said the next wave of gains is likely in transport industries such as shipping and trucking, alongside mining, agriculture and food production.
He identified small-cap agriculture as an infrastructure-style play set to benefit from inflation, pointing to macadamia orchards as a specific long-term example.
“The maturity of things like macadamia orchards grow and increase over time. A lot of those leases are very long term in nature, with strong tenants,” Golowenko said.
“Linking it back to inflation, if you have inflation coming through higher and a bit stickier, then we see the cash flow generation over the medium term strengthening and [acting] a little bit like an infrastructure type play.”
Meanwhile, taking a more optimistic macro view on technology stocks following improved signals from the NASDAQ and US markets, he said MLC is taking a lead on that momentum for the local market.
Despite the broader software sell-off this year, Golowenko said “mission critical” firms such as energy and utilities software provider Hansen and government software specialist TechnologyOne continue to offer attractive growth opportunities in Australia and potentially overseas.
Though the index has recovered from earlier lows, the S&P/ASX All Technology Index remains down about 15 per cent for the year to 22 April.
