Aussie equities a ‘go-to destination’ in 2023

Oksana Patron

16 January 2023

Australian equities are positioned to continue to outperform their global peers in 2023 driven by China re-opening optimism that is likely to be beneficiary for a number of Aussie sectors with high revenue exposure to China, VanEck said.

The manager, which is one of the largest issuers of exchange traded funds (ETFs), stressed that in the coming year Australia would likely avoid recession and would be better positioned than most countries to manage economic headwinds in 2023, largely due to a return of immigration and the resources sector which is expected to benefit further from the Chinese plan to lever infrastructure spending in order to underpin economic growth.

Aussie equities was still one of the better performing equity markets in 2022, despite Australian equity and bond markets having gone down last year for the first since 1994 which was triggered by a combination of multi-decade high inflation and growing interest rates, Russian invasion of Ukraine and China’s COVID-zero policy.

“While almost every major asset class took a sizeable hit last year, Australian equities offered relative defense,” VanEck’s Asia-Pacific chief executive and managing director, Arian Neiron, noted.

Additionally, the performance of the Aussie equities was supported by the Q4 2022 resources rally and Australia’s higher ‘value’ exposure relative to other country equity benchmarks.

VanEck, which favoured resources, real estate investment truts (REITs) and consumer staples while remaining neutral on banks and underweight consumer discretionary, predicted the Reserve Bank of Australia (RBA) cash rate to peak this year at 3.85% with the Australian 10-year yield to remain around current 4% level.

The manager also said it would not exclude an inversion of the curve which could support bond proxies like REITs, infrastructure and utilities.

“We see Australia being the lucky country again in 2023, with Australia likely to avoid recession. Australia has lower headline inflation than the US and many European nations,” Neiron said.

“This means the task of the RBA containing high inflation without triggering a recession, aka ‘hard landing’, will be easier relative to other nations.

“The majority of Australian mortgages are variable which means cash rate increases immediately impact budgets and corresponding spending. This allows the RBA, if warranted, to pivot and impact the economy faster based on changes in inflation.”