The equity sector to pick up bargains
An Equity Trustees stockpicker belives the full impact of rate hikes by the Reserve Bank of Australia (RBA) is yet to be felt.
Chris Haynes, head of equities at Equity Trustees Asset Management, said Australians should be prepared for the full impact of the rate rises - and the possibility of a few more to come.
Speaking to Money Management, Haynes said: "Inflation is an issue and the RBA needs to ensure it gets it under control. We need to be prepared for the pain that is yet to come in the economy,” he said.
“The coming recession has been well flagged - and maybe we have a soft landing. But I think it is best to prepare for that recession. I think it's too early to be positive.”
Haynes said the economic headwinds created by the three-month lagged impact of a 3.15% increase in variable interest rates on around $1 trillion of home loans originated and refinanced are now flowing through.
House prices fell 5.3% in 2022, with CoreLogic figures revealing Sydney led the downturn, with home values falling by a total of 12.1% last year.
Haynes expected further declines this year: “Borrowing capacity has been reduced with the rate rises and those that have loans are going to pay a lot more interest in FY2023,” he said.
“The RBA stress tests show that a material part of the borrowing cohort could go into negative cashflow, not great for a consumer economy like Australia.”
While consumer spending held up well outside of housing, the head of equities said investors needed to prepare for a large decline in that area.
“The stockmarket has already marked down the share prices of the consumer discretionary sector, but we have not seen the earnings decline yet,” he said.
“We should expect to see that in 2023. And we should be prepared to pick up some bargains.
“We may also see a period of below trend growth and in that environment stock picking becomes important especially focusing on quality factors such as balance sheet, pricing power and earnings certainty.”
AUTHOR
James Mitchell
Recommended for you
Infrastructure assets are well-positioned to hedge against global uncertainty and can enhance the diversification of traditional portfolios with their evergreen characteristics, an investment chief believes.
Volatility in US markets means currency is becoming a critical decision factor in Australian investors’ ETF selection this year.
Clime Investment Management is overhauling the selection process for its APLs, with managing director Michael Baragwanath describing the threat of a product failure affecting clients as “pure nightmare fuel”.
Global X will expand its ETF range of exchange-traded funds next month with a low-cost Australian equity product as it chases ambitions of becoming a top issuer of ETFs in Australia.
