In a market note, the asset manager revealed it has reduced its exposure to Australia, while increasing its overweight position in global equities due to easing monetary policy, Chinese stimulus measures, and the potential for broader earnings growth.
“Within equities, we added to our overweight value, globally, based on more attractive relative valuations and as global central bank easing should provide a backdrop for broader market participation. We funded this from Australian equities which are expected to deliver weaker earning prospects,” the note stated.
The firm also pointed out that several factors are weighing on Australia, including market pricing that appears “too sanguine” regarding future interest rate cuts. Additionally, elevated valuations and weak earnings forecasts are making the domestic market less favourable compared to its peers.
While China’s economic rebound has raised hopes in some markets, T. Rowe Price expressed concerns that it may not immediately benefit Australia. The asset manager noted that the rebound might take time to filter through to iron ore prices, as stabilising China’s housing sector remains a key challenge.
This view aligns with Citi strategist Beata Manthey, who also recently reiterated the firm’s underweight position on Australia.
Speaking on Ausbiz on Tuesday, Manthey said: "We’re overweight on the US for now and Europe, which we have just upgraded. Australia and Japan are underweight".
She cited Australia’s resource-heavy economy and high valuations as key concerns.
“Australia is a cyclical market, but it is very resource-driven. We worry that the news flow out of China – the stimulus they are going to provide – is not going to be as infrastructure-driven as before. Therefore, you don’t need as many basic resources to drive the stimulus or benefit from the stimulus,” Manthey said.
She also highlighted Australia’s weak growth outlook and expensive valuations relative to other cyclical markets, making it a poor performer in Citi’s allocation model.
Earlier this week, the S&P/ASX 200 Index hit a new record high, surpassing 8,300, buoyed by strong performances from mining and banking stocks. However, by Thursday, the index had pulled back slightly, sitting just below the 8,300 mark.
