A decline in bond yields, which may turn out to be a counter-trend rally, has allowed a recovery in US and Australian equities since late September. Australian equities seem to be performing especially well because of superior earnings. These superior earnings seem based in the out-performance of the Australian resources sector.
Our model of the ASX200 at the end of November 2022 stood at 7370 points. As we reach the end of 2022, Australian commodity export prices, seem to have declined slightly but remain well above the peak levels achieved during the previous resources boom earlier in the century. It is likely that this out-performance of the Australian equities market, over the US equities market, can be maintained in 2023.
Staying the course
Advertisement
The problem we see is that Central Banks have yet to come to the end of their tightening cycle. It is entirely possible that bond markets have underestimated the willingness of Central Banks to move to higher ground. It is entirely possible that renewed increases in short rates will provoke a further sell-off in US and other treasury securities as we move into calendar 2023. This could generate further downward pressure on world equities in the first half of 2023. We will have to live through this difficult period to find what exactly Central Banks have in store.
Still, we may be confident that by the time we reach the middle of 2023, this process of Central Bank tightening will be completed. The outlook then is for falling inflation, inflation that is falling throughout calendar 2023 and 2024. This should then generate an extended rally in long term bonds. This rally in long term bonds should allow an equally long rally in US and Australian equities. It is really just a matter of staying the course until Central Banks are satisfied that they have completed their program.
The information contained in this report is provided to you by Morgans Financial Limited as general advice only and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk.
This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for use by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.
Discuss in our Forums
See what other readers are saying about this article!
Click here to read & post comments.
2 posts so far.
reddit this
Del.icio.us
Seed Newsvine
StumbleUpon
