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Aust market to be squeezed from within and without

A funds management firm has forecast the Australian economy and share market will both be subject to an ongoing slowdown driven by external and internal factors, including the outcome of the pending federal election and the banking royal commission.

Tribeca Investment Partners portfolio manager Jun Bei Liu said there was a synchronised slowdown of economies across the globe and Australia was not immune from that. At the same time, Australia’s housing market had softened, which was reflected in consumer confidence during 2018, Liu said.

“The softening housing market has taken a toll on consumers. In the last 12 months we have seen consumers be frugal and the 2018 Christmas period was reported as one of worst for retailers, especially those linked to discretionary spending,” she said.

According to Liu, a range of other factors also pointed to a slowdown with more companies reporting downgrades, building approvals moving into negative territory and new job listings also declining towards the end of last year.

“Business confidence across a broad base has dropped and order books are not looking great due to volatility in the equity market,” she said, pointing out most sectors of the ASX 200 Index faced a downturn in 2018.

“We have already seen a lot of profit warnings and the reporting season has yet to officially start, and we expect more to come from those businesses with domestic exposure.”

The wildcard in predicting where markets may go next was the federal election and how a win for the Labor Party may impact on investments, particularly with regard to imputation credit refunds, she said, with companies starting to consider what to do with franking credits they already hold.

“In a slow growth environment, any changes to refunds will affect the capital allocation decisions of companies as boards will need to consider what will be the best way to generate returns for shareholders, especially if they have a large retail base of shareholders, and how to release those credits ahead of the changes,” she said.

“Equity markets are already starting to price that issue and how to get these credits to market will continue to play out over the next six to 12 months with more off-market buy-backs and special dividends.”

Despite these issues, she said the wider market would still maintain a reasonable pace, but will be slower than some of its global counterparts.

“For the ASX 200, we have an earnings growth forecast of just under 4.5 per cent for 2019, which is low compared to some global markets such as the US at 6 per cent and Asia ex-Japan still at 7.5 per cent,” she said.

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