This week we share six charts we are watching right now on the Australian equity market. The outlook for the Australian equity market in isolation remains quite encouraging, despite the current geopolitical tensions. Year to date, the Australian market is down -5% vs MSCI World index in A$ which has fallen -10%.
Read Solid Local Results Overshadowed by Global Events
The prospect of rising interest rates both offshore and domestically this year reflects the continuing cyclical recovery taking place in economies and corporate earnings. This should prove to be a reasonable backdrop for the market – especially given the large weighting of cyclical sectors like energy, resources, and financials.
Right now that outlook is being questioned, with the Russia Ukraine conflict raising numerous concerns. By itself, the conflict should have only a small impact on the Australian market which has very little direct exposure to Russian assets.
The impact of the current tensions on the Australian market will be primarily felt through the transmission mechanism of higher commodity prices and higher equity risk premiums (ERP). In prior global crises, higher ERPs have typically been associated with market bottoms, with rebounding markets delivering double-digit returns over the following 12 months.
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Written by
John Lockton, Australian Equities
John is a leading investment strategist with 20 years experience.