Australian shares are still an attractive option for investors, but they will need to be more selective as the local market passes through a time of global political and economic uncertainty, according to Fidelity International.
Australian High Conviction Strategies portfolio manager Zara Lyons recognised the strong start to the year for the Australian share market has been undermined by external events, but some of that impact has been considered already.
“I still see Australian equities as an attractive place to invest, although looking ahead over the next 12 months it pays to be selective in the market,” Lyons said.
“At the end of February, the Australian economy was looking in fairly robust health and you saw the Reserve Bank of Australia (RBA) initiating its first interest rate hike, being concerned with inflation during February.
“That was on the basis that the economy was looking quite robust and then we saw the initiation of the Iran conflict and the subsequent energy shock, which has at this stage an uncertain duration and is creating uncertainty for our voting population, as well as genuine economic headwinds, both directly and indirectly, for the Australian economy and global economy.
“Subsequently, the RBA followed up with a second hike in interest rates in March before the first one would have taken effect with mortgage holders, which I thought was quite aggressive, and the outlook from most economists sounds like they’re predicting one to two more [rate rises].
“The stock market has had to factor that into its thinking around how it will impact consumers and businesses, both as mortgage holders and in credit growth. So when I think about that, those factors really create a bit of uncertainty in terms of where we think about how the economy is going to fare from here.”
Lyons indicated while this seems to be an outlook of “doom and gloom”, it reinforces her view about investors choosing stocks with care.
“What I would point to is that it’s important to be selective and try to find opportunities where there is some structural growth stories, where there is pricing power, where companies have resilient balance sheets, and if in doubt, have stories [by which] they can try to navigate the uncertain economy,” she suggested.
“I would circle back to the fact of the start of the [Iran] conflict and we did start in a very strong place, and it’s important to have a long-term perspective and think about the long game, rather than lurching from one fear to another and be overly reactive.”