The Roadmap: September 2023
The economic outlook remains fascinating. Economies around the world have proved remarkably resilient to the sharpest tightening in monetary policy in a generation. Consumers have high accumulated savings and are enjoying record job creation and strong wage growth. A massive investment wave is also underway on electric vehicles, manufacturing relocation, defence spending and clean energy.
The global inflation threat has eased, allowing central banks to slow down rate rises. The result is much better economic outcomes than expected at the year’s start. Stock markets bounced based on this news and excitement about the emergence of Artificial Intelligence.
The question now is whether investors got too carried away as several risks are still hovering in the background. Inflation concerns could reappear, with a rise in wages the biggest consideration. Geopolitical tensions remain high around Russia and China. Some financial strains have emerged in US banks, and the Chinese property sector is under pressure.
In Australia, inflation risks are now greater than in many other countries, given jumps in electricity prices, rents and wages. Australian households are also more vulnerable to rate rises given high levels of debt and the rollover from fixed to variable rate loans.
All this suggests a broad range of potential outcomes over the next year. Economies may stay strong and boost earnings, or these risks could escalate.
Overall, equities have become less attractive because indices have already run hard, making them more vulnerable to some of the macro risks. Investors should consider having well diversified and defensive portfolios and continue looking for opportunities created by future volatility.
On a brighter note, the jump in interest rates will generally boost returns in interest rate securities and create significant opportunities in this asset class.
Stay close to your adviser as this highly unusual backdrop plays out, to help navigate opportunities as they arise.
This information was prepared by Evans and Partners Pty Ltd (ABN 85 125 338 785, AFSL 318075) (“Evans and Partners”). Evans and Partners is a wholly owned subsidiary of E&P Financial Group Limited (ABN 54 609 913 457) (E&P Financial Group).
The information may contain general advice or is factual information and was prepared without taking into account your objectives, financial situation or needs. Before acting on any advice, you should consider whether the advice is appropriate to you. Seeking professional personal advice is always highly recommended. Where a particular financial product has been referred to, you should obtain a copy of the relevant product disclosure statement or offer document before making any decision in relation to the financial product. Past performance is not a reliable indicator of future performance.
The information may contain statements, opinions, projections, forecasts and other material (forward looking statements), based on various assumptions. Those assumptions may or may not prove to be correct. E&P, its related entities, officers, employees, agents, advisors nor any other person make any representation as to the accuracy or likelihood of fulfilment of the forward-looking statements or any of the assumptions upon which they are based. While the information provided is believed to be accurate E&P takes no responsibility in reliance upon this information.
The Financial Services Guide of Evans and Partners contains important information about the services we offer, how we and our associates are paid, and any potential conflicts of interest that we may have. A copy of the Financial Services Guide can be found at www.eandp.com.au. Please let us know if you would like to receive a hard copy free of charge.
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