The speed of Australia’s economic recovery is being underestimated, believes T. Rowe Price, as the country will be far less dependent on vaccine success than other parts of the world.
In an update from the multi-asset team, the firm said the Australian economy could outperform expectations and that earnings forecasts appeared to be underestimating the speed of the recovery. There was also strong consumer spending, an improving jobs market and extra savings.
“The prospect of an effective COVID-19 vaccine rollout along with strong ongoing fiscal and monetary support bodes well for Australia’s economic growth. Earnings could experience a steep recovery as pent-up demand is unleashed and extra savings built during the earlier crisis are tapped,” it said.
“The Australian path to recovery looks clearer in the near term and less dependent on the success of the COVID-19 vaccines, which should likely lead to a rise in long-term yields.”
The team had moved to be underweight Australian bonds while increasing the weighting to global bonds as they expected global bond yields to steepen as growth expectations improved.
While a month ago, Australia was the firm’s sole geographic overweight allocation, it had since increased its exposure to Japan this month, at the expense of Europe, as it believed there was an improving trade outlook.
“Prime Minister Suga has promised to remain focused on the structural reform policies of his predecessor, also known as Abenomics, that have driven shareholder-friendly initiatives, including an acceleration in share buybacks,” it said.
“While cheering structural reforms, investors also see the opportunity for Japan’s heavily export-orientated sectors to benefit as global economies re-emerge from lockdowns this year. With these cyclical and secular forces helping to drive growth, there may be more to cheer about in Japan this summer than just the Olympic Games.”