Quarterly Australian Equity Market Outlook

April 2019
Randal Jenneke , Head of Australian Equities

Jonathon Ross: Well today I'm joined by Randal Jenneke, head of Australian equities and the portfolio manager for our high conviction Australian equity fund. Randall thanks for joining us. Since we last spoke we've almost had, almost a V shaped recovery obviously. The end of 2018 was a big selloff and then we've seen a pretty big, strong rebound. What have been the highlights for you this year?

Randal Jenneke: I think if you think about what's happened during this quarter just gone, is that we've really recovered strongly from the selloff that we had in December quarter last year, and a lot of the fears that people had kind of got eased somewhat. So the first one was obviously, in terms of what was happening in terms of growth and trade, we had some stabilisation in terms of measures of growth and also some positive moves in terms of the direction of the trade negotiations between China and the US.

Randal Jenneke: Secondly also we saw that there was a change in direction of monetary policy in quite a few markets around the world. So the US Fed signalled that it was going to pause its rate increases. We also saw domestically the RBA basically move from a bias to raise rates. If you went back to the September quarter last year for a bias to ease now. So that's give support to the markets as well.

Randal Jenneke: I think the equity market has taken confidence from both of those positive changes and then during reporting season I think we also saw that things weren't as bad as some people feared that they could be. So whilst there was some downgrade to earnings during that period of time, you actually saw that the market posted some strong performance because things panned out to be somewhat better.

Randal Jenneke:  I think its been a combination of all of those factors that's lead to the rebounding markets over this quarter. Markets rose, or the Australian market rose by about 11 percent during the March quarter. Very strong performance, more than recouping the losses from the December quarter, and I think there's a really good setup going forward for the rest of the year.

Jonathon Ross: Great, and in terms of the outlook then, obviously markets have recovered from the losses. How do you see things playing out over the near term?

Randal Jenneke: So what's interesting, if you look at what's going on right now, is that clearly things have stabilised and started to improve. You can see that in some of the data coming out of China more recently, and the US as well. So what that should mean is that as demand starts to improve, I think the earnings picture also starts to improve, and I think that's going to be important for markets going forward. I think from here, given the strong March quarter bounce that we had, that equity market returns are really going to be driven by earnings going forward, so I think that improving environment's going to be positive and so I do think that the rest of this year actually sets up quite, quite nicely.

Randal Jenneke: The other thing that I think happens is that we have this change in leadership within the marketplace, because we saw very defensive sectors were the ones that lead the market higher during the March quarter. Materials was one notable exception to that, but I think as we get into more normalised growth environment, expect that your sort of quality growth names will start to do a lot better going forward.

Jonathon Ross: Great, and you mentioned changing leadership obviously in terms of the sectors or stocks that have led the markets. We've got an election coming up. How do you see that affecting markets and have you got a view on who's likely to get in?

Randal Jenneke: So we have an election next month. We think the most likely outcome is that there is a change in government. So we're spending a lot of time thinking about what the policies of a new government could be. There are some quite big changes potentially to taxation policy and then there is some other policies which will also impact in different sectors of the market. I do think overall that whichever side wins the next election there's going to be a bit of stimulus that gets put into the economy and that probably comes at the right time because growth obviously, domestically, has been weak for the last six months. The RBA, as I mentioned, has moved to an easing bias so that would take some of the pressure off the RBA. So I think that should be supportive of potentially, I guess more of a stabilisation in growth rates going forward.

Randal Jenneke: On a sector by sector basis, we continue to favour the offshore owners, mainly because we do see that despite even a better domestic picture, that there's more opportunities in some of the offshore stocks that are less impacted by some of the potential risks that we see still coming from the housing market locally.

Jonathon Ross: Great. Well thanks Randal. And thanks for tuning in. If you've got any further questions about the role that any of our strategies, in particular the Australian equity strategy can play for your clients, feel free to reach out to your local T. Row Price representative. Thank you.


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