Australia viewed as positive market for global allocators

Global asset allocators are increasing their weightings to Australian equities for the first time in years, according to T. Rowe Price, as their earnings outlook improve.

Australia had outperformed many major markets since the start of the year and was one of few developed markets to post positive returns over the period. This left Australia in a strong position relative to other global markets such as US and Europe which had seen downgrades.

Randal Jenneke, head of Australian equities at T. Rowe Price, said: “We are far enough removed from the conflict in Europe to avoid direct impacts and stand to benefit from Russian sanctions. Similarly, the inflation picture had been much less heated than offshore (particularly the US).

“We believe the strong commodity price environment, high level of domestic savings and tight labour market will help provide support to the economy, but inevitably an economic slowdown is required to get inflation back under control.”

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He added this made Australia an attractive market for global allocators where they were increasing their exposure. Last month, T. Rowe Price moved its weighting to Australian equities from neutral to overweight.

“The Australian equity market’s earnings outlook has improved relative to peers, who are in contrast facing earnings downgrades. Further despite the price correction offshore, valuations are also more attractive than markets like the US with a larger than average P/E discount that has persisted throughout the pandemic.

“These factors combined with the relatively stronger economic outlook have driven an increased allocation to Australia from global asset allocators, who are for the first time in many years increasing their weighting to the Australian equity market.”