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What is New

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Why growth in China is unlikely to slow too far and why it needs to save less and spend more

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

The attached note looks at the outlook for China. The key points are as follows:

  • China's economy is slowing but not collapsing as the services sector holds up. A further slowing is likely in the short term, but policy stimulus is likely to see growth improve in the second half, giving 2019 growth of 6.2%.
  • Concerns about China's rapid debt growth are overstated given it reflects high (not low) savings.
  • Chinese shares are cheap and attractive on a 12 month view, but expect short term volatility.
  • Reasonable Chinese growth is a positive for the Australian economy. The housing downturn will dominate though, pushing the RBA to cut rates and this will see the $A fall further into the $US0.60s.
 

 

 

 

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Oliver's Insights - Review of 2018, outlook for 2019 – another cycle extension

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

The attached note provides a review of 2018 and what it meant for investors and takes a look at the outlook for 2019. The key points are as follows:

  • 2018 saw reasonable global economic and profit growth and still low interest rates but it has been a rough year for investors with worries about the Fed, trade wars and global growth causing volatility and poor returns.
  • 2019 is unlikely to see the plunge into recession many fear with growth likely to stabilise supporting profit growth, the Fed is likely to undertake a pause in rate hikes and global monetary policy is likely to remain easy. The RBA is expected to cut interest rates.
  • Against this backdrop, share market volatility will likely remain high but markets should start to improve through the year.
  • The main things to keep an eye on are: the risks around the Fed, US/China tensions, global growth, Chinese growth and the property price downturn in Australia.

 

 

 

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Oliver's Insights - Corrections, gummy bears and grizzly bears in shares

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

The attached note takes a look at the renewed weakness in share markets seen in recent weeks which has taken them back to around their late October lows. The key points are as follows:

  • The pullback in shares could still have further to go but a deep (grizzly) bear market is unlikely as US, global or Australian recession are unlikely.
  • Increasing US Federal Reserve openness to a pause in raising rates, the likelihood of a US/China trade deal sometime in the next six months and the plunge in oil prices all add to confidence that a grizzly bear market is unlikely.

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Oliver's Insights - Rising US interest rates, trade wars, the US midterm election results, etc - should investors be worried?

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

The attached note takes a look at share market valuations. The key points are as follows:

 

  • It's still too early to be sure that last month's pullback in shares is over but we remain of the view that it was not the start of a deep bear market and that the trend in shares remains up.
  • Worries around US interest rates, trade wars, European politics etc are unlikely to be terminal.
  • The US midterm election turned out pretty much as polls indicated. Since 1946 US shares have rallied in the 12 months after all midterm elections.

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The Australian housing market starting to cool (in parts)


Shane Oliver, Head of Investment Strategy and Chief Economist.

Key points are as follows:
 

Australian housing remains overvalued and this has gone hand in hand with 

high household debt. Against this, supply has been constrained and there has 
not been a deterioration in lending standards.

The hot Sydney and Melbourne property markets are showing signs of cooling
  as APRA measures bite. Expect price falls of around 5-10% around 2017.

Property investors need to be careful at this point in the property cycle as 
medium term returns are likely to be constrained.



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