T. Rowe Price is neutral on Australia as it believes earnings could be cut in the near term.
On its multi-asset outlook, the firm said it was neutral on Australian equities and overweight on Australian bonds, unchanged from the previous month.
The positive news for Australia is that the Reserve Bank of Australia is expected to raise rates more slowly this year, with consistent rate hikes from May to December 2022, putting pressure on yields. will be alleviated. The banking sector also improved earnings, benefiting the stock market.
However, there were downsides: slowing consumer spending, inflationary pressures and a shrinking housing market.
“The economic slowdown signals a possible earnings downgrade. A rebound in China could soften the slowdown, but the housing market and commodity prices are gearing up for negative surprises in the coming months.
“Long-term yields are likely to trade in a narrow range with a downtrend bias going forward as economic growth is expected to slow against the backdrop of this rate hike cycle. likely to support lower yields. “
T. Rowe Price said it expects earnings to recede even if it avoids a recession as a result of the delayed impact of higher interest rates.
The average decline in ASX revenue during a revenue downturn was close to 30%.
“The base case for 2023 is that even if Australia does not experience a recession, it is likely to experience a recession in earnings. I have.
“Revenues have been doing pretty well so far, mainly because the impact of the rate hikes we’ve seen in the country is only really starting to have an impact. The real pain will be felt next year when mortgages roll off to significantly higher floating rates.”