Despite strong performance over the past two years, the Australian stock market has lagged behind the global recovery, and a similar trend is expected to persist.
Citi remains overweight the US and, more recently, Europe, while maintaining an underweight Australia due to its resource dependence and concerns about future growth prospects .
Speaking on Ausbiz on Tuesday, Citi strategist Beata Manthey expanded on these concerns: “We are overweight the US and Europe at the moment, which we have just upgraded. Australia and Japan are underweight.
She highlighted the change in China’s recovery strategy as a key factor impacting Australia’s outlook.
“Australia is a cyclical market, but it is very resource-driven. We’re concerned that the news coming out of China – the stimulus it’s going to bring – may not be as infrastructure-focused as it once was. Therefore, you don’t need as many core resources to drive or benefit from the recovery.
Manthey also highlighted Australia’s high valuations and poor growth prospects compared to other cyclical markets.
“Australia is difficult to compare with other cyclical markets. It is very expensive and the growth prospects are not particularly good due to the decline in raw materials. So, it performs poorly compared to other more cyclical markets in our allocation model,” she said.
On Tuesday, the S&P/ASX 200 index rose above 8,300 to hit a new record, driven by strong performances from major mining and banking stocks. Australian stocks mirrored gains on Wall Street, where the Dow and S&P 500 hit new highs.
However, investors are closely watching the economic outlook for China, Australia’s largest trading partner, as they await further details on Beijing’s recently announced fiscal stimulus package, with announcements made so far lacking details on its extent.
Talk to ABC News Over the weekend, AMP’s Shane Oliver said that until China “falls off the cliff” it poses “no major threat to Australia”.
Economists had previously highlighted the need for greater fiscal stimulus after the People’s Bank of China (PBOC) announced a monetary stimulus package last month, which included a reduction in reserve requirement ratios and interest rates directors.
What followed were two disappointing announcements, leaving the world awaiting clarification on the cost of China’s fiscal stimulus, with details expected to be revealed when China’s legislature meets in the coming weeks.
In the latest announcement, Finance Minister Lan Fo’an pledged to issue more debt to support the struggling real estate market and recapitalize banks; However, these measures do not reflect the urgency of fighting deflation and boosting consumer spending, two measures seen as crucial to revitalizing China’s economy.
Oliver stressed that while these policies may bring China a cyclical increase in growth, without structural reform, that growth is “likely to run out of steam.”
In his most recent market outlook on Friday, ahead of China’s most recent announcement and global market gains, Oliver said the combination of tight valuations, the still-elevated risk of a U.S. recession and in Australia, the extension of the war in the Middle East to This could impact oil supplies, and the US elections mean that “the risk of a further correction and ongoing bouts of volatility is high” .
“Over a 6-12 month period, however, stocks are expected to rise on the back of successful reductions in global inflation, central bank rate cuts – with the RBA set to join in – and to China stepping up its stimulus measures October “We often see high levels of volatility in the stock markets, but beyond that we are coming to a positive time of year for stocks by a point. seasonal view”, declared the chief economist.
