Thursday, April 19 2012
The Australian share market is underperforming developed markets despite our superior performance during the GFC and low unemployment.
The chart above highlights the underperformance by Australia compared to the US. There are a number of reasons for this:
- Consumer and business confidence is low impacted by a range of factors including global macro concerns, weather and political instability (something rarely seen in Australia).
- The high currency is placing pressure on certain segments of the economy and keeping some investors on the sidelines.
- Resources underperforming with sentiment towards China poor.
We can expect some improvement over the course of the year in confidence especially if the RBA moves to lower rates. However the larger drivers for our market will likely arise from either a sell down in the currency or via improving sentiment towards China. A sell down in the currency would be particularly beneficial if it were accompanied by a sell-off in bonds which would likely drive some of the fund flows that have been hiding in this asset class to move to risk assets such as equities. Alternatively sentiment towards China could improve given there are signs emerging of a soft landing which would drive better performance from the resource sector.
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