Morningstar Australasia Pty Ltd ABN: 95 090 665 544, AFSL: 240892
Equity prices have had a good start to the year, though the price gains have yet to recover all the ground lost in the global sell-off late last year. The more defensive, income-oriented sectors have done especially well as investors have worried less about the valuation threat from potential bond yield rises, and have viewed less cyclical equities as a useful hedge against global growth shocks. Looking ahead, the central scenario is ongoing global growth at a modestly slower rate, though with significant potential for trade disruptions (US-China, Brexit) and for the policy errors or other accidents that can derail already mature business cycles. Cash and bond yields look likely to remain very low by historical standards.
In Australia, recent indicators have been on the weak side, and in particular there is a risk around the impact of falling house prices on household spending, which adds to already cautious consumer behaviour. Assuming the economy manages reasonable though not strong growth, a key issue is whether a middling business outlook can translate into stronger business profits.
For a full review and outlook of each asset class, Morningstar’s February report can be found here.