Australian Shares

Rate cuts to boost share market

Australian shares interest rates Ausbil

The Australian share market will outperform expectations in the 2024 and 2025 financial years, primarily due to anticipated cuts to interest rates as inflation falls.

Predicted interest rate cuts are anticipated to drive stronger-than-expected performance in the Australian share market for the 2024 and 2025 financial years, allaying fears of a recession in the broader domestic economy, according to an Australian boutique fund manager.

“Inflation fell across [the reporting period for the first half of] 2024 and there was only one rate rise of 25 basis points in the six months from July to December 2023, compared to 400 basis points in the year and a half that preceded. Ausbil believes that we are at the start of a rate-cutting cycle in terms of the direction of rates, though the quantum and timing remains unknown,” Ausbil Investment Management executive chairman and chief executive Paul Xiradis noted.

“The overall macroeconomic outlook has improved with rates peaking and inflation falling, and with Australia’s excess savings, strong employment market and global demand for our resources, Ausbil expects Australia to avoid recession.

“In this environment, we believe earnings growth will recover more than the market expects, broadening across sectors and moving down the market-cap spectrum.”

Xiradis suggested a downward trend in rates could reintroduce cyclicality into the market, offering consumers more breathing room and lending support to sectors such as housing, consumer goods, select real estate and other cyclical businesses.

“Decarbonisation and the energy transition remain significant themes that will drive value across resources, energy, utilities and the mining services sector with respect to critical commodities,” he noted.

“We are also seeing structural earnings growth in technological transformation, the rise of artificial intelligence and the enablers and businesses that increasingly operate in the digital environment, including communications companies.

“On aggregate, we see earnings growth for the 2024 financial year as a little more positive than implied by consensus as companies are now settling into operating in a normalised interest rate environment.”

The fund manager forecast central banks will implement rate cuts while economic growth maintains positivity, albeit below trend, primarily to prevent real interest rates from hindering long-term business investment.

“We think this will also see economic growth strengthen and earnings growth for [the 2025 income year] exceed consensus expectations, as well as earnings recover and broaden across sectors and down the market-cap spectrum,” Xiradis said.


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