Catch-up rally likely for Australian shares
Australian equity performance does not reflect the country’s strong COVID-19 crisis response compared to other global markets, making a catch-up rally likely in the future, according to T. Rowe Price.
In a monthly update on its global asset allocation, managers Richard Coghlan, Randal Jenneke, Thomas Poullaouec and Wenting Shen said the policy measures such as JobKeeper had been effective responses.
“Equity underperformance relative to global markets does not reflect Australia’s crisis response and containment efforts. A catch-up rally is possible, especially amid the rotation to cyclicals,” they said.
“Policy measures from the government and the RBA were deployed quickly and aggressively. The JobKeeper programme has proven to be effective.
“Pent-up demand and the need for restocking as lockdown restrictions ease should be tailwinds for the economy.”
T. Rowe Price was neutral on the region overall, in line with its wider geographic allocations which were neutral on global, US, Europe, Japan and emerging markets.
“Australian shares are rebounding as the market is shifting back to cyclicals to close on recent underperformance. Still, earnings uncertainties and elevated valuations warrant a cautious position relative to global equities,” the update said.
As well as earnings uncertainty, the managers were cautious about lower consumer spending as a result of social distancing and possible tensions with China.
“US/China tensions have also spilled over to Australia as leadership joined the US in calling for an independent investigation into the origins of the COVID-19 outbreak. China accused Australia of playing politics and quickly imposed restrictions on some of its exports, including beef and barley,” it said.
“An escalating trade clash could damage the significant export market to China, which accounted for one-third of Australia’s overall outbound trade.”
According to FE Analytics data, within the Australian Core Strategies universe, the T. Rowe Price Australian Equity fund lost 13.4% versus losses of 11.5% by the Australian equity sector since the start of the year to 31 May, 2020.
Performance of T. Rowe Price Australian Equity fund versus Australian equity sector since the start of the year to 31 May 2020
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Laura Dew
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