Citing a lack of “growth positives”, VanEck suggested the Australian economy has stalled in its latest economic outlook.
“It’s a case of things may not be as strong as the data is suggesting,” said VanEck Asia-Pacific chief executive, Arian Neiron.
Neiron suggested that while the Reserve Bank of Australia (RBA) has kept a watchful eye on inflation, “the worry is that they’ve missed the boat on growth”.
“The RBA is paying close attention – and rightly so. The last employment print was a surprise. If it turns out we’ve been misled by employment figures which are unwittingly skewed due to changed seasonal patterns, there are some challenging times ahead. Any signs of labour market capitulation will see Australian rate cuts coming thick and fast,” the CEO opined.
According to him, data pointing to the Australian economy “doing it tough” is abundant, and it’s surprising that “more people aren’t worried about a hard landing”.
“We’re potentially already at a soft landing, and, unfortunately, there aren’t too many growth positives right now. Business investment has been OK, but, despite rock-bottom vacancy rates, housing investment is in the doldrums. Commodity prices for Australia’s exports look toppy.”
Moreover, VanEck highlighted shaky real household disposable incomes, which have been battered by inflation, and stalling consumer spending as largely concerning. The last straw, the firm said, would be a weakening labour market.
“If businesses start layoffs in response to weak demand, then household incomes could fall further, and we get a downward spiral,” it said.
“Wheels touching the runway, that is, growth briefly slowing to zero before resuming, is a soft landing. Panicking onto the runway is a hard landing,” VanEck warned.
Turning to how investors should behave in this uncertain environment, Neiron said: “Prudent investors will be bolstering their portfolio to withstand potential exogenous risks that may present themselves.
“We implore investors to avoid being complacent and be wary of being caught up in any irrational exuberance. Momentum begets momentum and momentum can also be negative.”
For investors in equities, VanEck advocates “staying the course” with quality companies that have a demonstrable track record of stable earnings, high return on equity and low financial leverage.
Bond investors’ focus, the firm said, should be in investment grade credit, with an expectation of rising insolvencies in the small to middle market complex.
“Tail risk hedges are a necessity,” Neiron noted, adding that investors would be wise to start holding gold and gold miners.
In other recent research, Martin Currie revealed that while a “Goldilocks” outcome remains the consensus for the Australian economy, a hard landing is still a real possibility.
In fact, Martin Currie chief investment officer, Reece Birtles, said he 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 cash flows 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,” Birtles said in March.
