ASX sectors to benefit from rate cut
Some sectors of the Australian share market are most likely to get a lift from the decision by the Reserve Bank of Australia (RBA) board to cut the official cash rate by 50 basis points to 3.75 per cent, according to heuristic Investment Systems economist Damien Hennessy.
Hennessy - who is a consultant to van Eyk Research - said diversified financials, building materials, retail and media sectors were historically the best performers when home loan interest rates were below their long term average and declining.
These sectors are most likely to benefit this time around too, according to Hennessy.
"Diversified financials have tended to do quite well in an environment of below average home loan rates and have averaged three-month returns of 3.4 per cent in such periods," he said.
However, he said the size of the cut was probably not enough to cause a major move by investors into cyclical stocks.
The extent of any outperformance by diversified financials, retail or media sectors may depend on whether households choose to spend the extra cash from reduced mortgage payments or accelerate the paying down of debt.
"This cut by the RBA is more about reducing the downside risks to the economy," Hennessy said.
Hennessy added the 0.5 per cent cut would be enough to bring mortgage rates below their long-term average even if the banks failed to pass on the full reduction.
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