VanEck's latest global economic outlook casts a cautious eye on the Australian economy, describing it as "shaky" amid global economic uncertainties. The report highlights a significant liquidity presence and vibrant markets, hinting at possible inflationary pressures ahead.
The analysis reveals concerns over Australia's economic trajectory, noting that while business investments show stability, the housing sector remains sluggish despite low vacancy rates. It also points to potential vulnerabilities in commodity prices, which are crucial for the country's export-driven economy.
“We’re surprised more people aren’t worried about a hard landing in Australia. We’re potentially already at a soft landing, and, unfortunately, there aren’t too many growth positives right now. Business investment has been okay, but, despite rock-bottom vacancy rates, housing investment is in the doldrums. Commodity prices for Australia’s exports look toppy,” the report states.
How strong is the data?
VanEck Asia Pacific CEO and managing director Arian Neiron said: “It’s a case of things may not be as strong as the data is suggesting. 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.
'Divergence’ is the key theme for this quarter’s ViewPoint as 2024 heralds a distinct de-syncing of central banks, which had more or less been following a similar approach to monetary policy for the last few years. Economies around the world are looking vastly different.
“We’re coming out of a period of central bank synchronicity, with divergence of the key theme going forward. Prudent investors will be bolstering their portfolio to withstand potential exogenous risks that may present themselves,” Neiron said.
“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, we advocate 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 should be in investment grade credit. We see a mark-up in insolvencies in the small to middles market complex.
“Tail risk hedges are a necessity. Investors would be wise to start holding gold and gold miners,” said Neiron.
According to the report, “March has seen the rise of the miners, with gold mining stocks strongly outperforming gold bullion during the month. This could be the beginning of a reversion-to-the-mean trend that sees gold mining equities once again display their leverage to the gold price and outperform bullion when gold prices are rising.”