T. Rowe Price has increased its positioning to Australia to an overweight after eight months in neutral positioning.
The firm moved to a neutral position last September after a year as it expected economic growth and earnings would be lower going forward.
However, in a monthly asset allocation update, the firm said it had decided to move back to an overweight this month.
The increased weighting to Australian equities was funded by trimming Japanese and emerging market exposure as it believed the global economic slowdown would reduce the appeal of those markets.
It said: “By its geography, Australia is first isolated from the geopolitical tensions and second a beneficiary of the re-allocation of commodity trading activity. The domestic economy emerged from the last COVID lockdowns on a solid footing: unemployment is down, PMIs [purchasing manager index] still in expansionary mode, and business surveys suggest this should continue in the near term.
“While elevated, inflation is only slightly higher than the RBA target range, implying a lower burden to the economy relative to other developed economies. These positive drivers have been seen by the outperformance of the Australian stockmarket year to date.
“Given the positive trend in earning revisions, we believe this outperformance can continue in the near term. We also believe that the underperformance of Australian yields might prove to be over-extended in the near term, hence we reduce the underweight to that asset class tactically.”
Positive traits of the Australian market were a tight labor market and healthy savings rates, reasonable earnings expectation given the improved prospects for materials and financials and the fact that Australian assets were proving to be more resilient to geopolitical risks.
However, problems remained around deteriorating business conditions, a dovish stance from the Reserve Bank of Australia and rising yields on the horizon.
Elsewhere it had moved from neutral to underweight on global equities as it was concerned about lingering effects of the pandemic and geopolitical risks from the Russia-Ukraine war. It was also worried about persistent inflation and central bank missteps arising from that.
