T. Rowe Price believes Australian growth is effectively withstanding consumer weakness, but the firm’s multi-asset team remains cautious, opting not to reduce its underweight position just yet.
In its monthly multi-asset update, the firm stated that it continues to maintain its underweight position, which it has held since the beginning of the year, after reducing it from neutral.
“Australian growth remains positive due to solid population growth and upcoming fiscal stimulus, despite some early signs of weakness from the consumer side.
“We remain cautious on the short term due to extended valuations with weak earnings prospects.”
On the positive side, the firm praised the government’s support for the economy, how the housing market continues to support the wealth effect, and how the price of commodities such as copper and iron ore have rebounded.
However, it is still hesitant over sticky inflation, weakening consumer spending, and believes earnings continue to be at risk.
In Treasurer Jim Chalmers’ third federal budget delivered this month, he announced he expects inflation to return to the Reserve Bank of Australia’s target of 2–3 per cent by the end of the year while real GDP is forecast to grow by 2 per cent in 2024–25 and by 2.25 per cent in 2025–26.
According to T. Rowe Price, it was a quiet month for the firm, with no major rebalancing of asset allocations in its multi-asset portfolios. Australia remained underweight, global equities overweight, and emerging markets in a neutral position.
“Global growth outlook remains positive against a backdrop of gradually easing inflationary pressures across most economies.
“We remain modestly overweight equities, supported by resilient economic growth, positive earnings trends, and areas with more reasonable valuations. Within equities, we tilt the portfolio to markets more sensitive to the upturn in economic momentum, such as value-oriented sectors and Japan.
“Within fixed income, we continue to underweight duration as yields move higher on a repricing of future central bank policies. We remain overweight high yield and emerging markets bonds on still attractive absolute yield levels and reasonably supportive fundamentals.”
Earlier this month, the firm announced it will be closing its Australian equity strategy in light of the departure of fund manager Randal Jenneke who is the firm’s head of Australian equities.
Jenneke has been at T. Rowe Price for the past 11 years and is the head of Australian equities.
In a statement, the firm said: “After a thorough evaluation, T. Rowe Price has decided to close the strategy, as it was unlikely to gain the scale to be sustainable.”
