Australia’s recovery 'not as bad as feared'

Australia’s economic recovery from the COVID-19 pandemic is likely to be ‘not as bad as feared’ according to J.P. Morgan Asset Management.

While business and consumer confidence was low and the current pace of economic growth was below average, the firm said it was still optimistic.

Global market strategist Kerry Craig said: “We are relatively optimistic on the outlook for the economy and risk assets over the coming 12 to 18 months. A COVID-19 resurgence could defer the current growth path but is unlikely to derail it as we start a new cycle”.

In equities, stocks were trading at valuations which were well below their long-run averages but this was a reflection of the vast liquidity deployed recently and the collapse in earnings expectations.

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The increased use of liquidity by governments and central banks indicated they no longer feared debt and were willing to spend if it ensured economic growth. It would also drive asset price inflation in the coming quarters.

Craig said he expected volatility would remain higher as geopolitical tensions remained fraught, especially heading into the November 2020 US Presidential election, meaning it was important for investors to have a diversified portfolio.

“While we advocate leaning into risk assets as the recovery unfolds, investors should also guard against tail events given the nature of the shock. Diversification across asset classes and adding income-generating investments will remain important investment considerations,” he said.