T. Rowe Price closes Aussie overweight after a year
T. Rowe Price has closed its overweight position to Australian equities after a year as it believes economic growth has now peaked.
In an asset allocation monthly update, the multi-asset team said it expected economic growth and earnings to be lower going forward as a result of the lockdown.
Head of multi-asset solutions, Thomas Poullaouec, said: “We are closing the overweight. Economic growth and earnings have likely peaked. Expectations will be reset lower to reflect the effect of the COVID-19 lockdowns. Focus on high quality stocks”.
It added the impact of the lockdown on the economy seemed to be underestimated, forward guidance suggested earnings were likely to be revised downwards and valuations were less favourable than before.
However, there could still be some positives to Australia if Q3 activity was only a “pause” and it picked up again in Q4. The Australian dollar was also likely to rebound given low expectations and positioning after the fall in commodity prices.
T. Rowe Price first moved overweight on Australian equities back in September 2020.
At the time, it said: “Australian stocks should benefit from strong monetary and fiscal stimulus. Elevated saving rates may support consumer spending along with pent up demand and better-than-expected jobs report. Earnings revisions have improved and could bode well for a cyclical rally”.
Other changes made this month included moving from underweight to neutral on global equities.
“While we maintain our preference to cyclical exposures like emerging markets, Japan and value stocks, we moderate our underweight to US stocks which continue to reach record highs on the back of a prolonged low yield environment,” it said.
AUTHOR
Laura Dew
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