aVstralia to decouple from the Usa
In our view the Australian economy and equity market should decouple from the US and materially outperform over the next 6-12 months. In this note we find that Australia is better placed than the US on 7 of 8 key points of comparison, including:
- COVID-19 containment – the US death rate is 87 times Australia;
- COVID19 restart – Australia’s successful three-step restart contrasts with an acceleration of COVID-19 cases in southern and western US;
- Political risk – elevated in the US in a presidential election year, whilst there are prospects for renewed reform in Australia;
- Monetary policy – unprecedented stimulus in the US, but strong stimulus in Australia;
- Fiscal stimulus – unprecedented 10-11% of GDP stimulus in both countries, but better directed in Australia;
- Consumer confidence – Australia has rebounded strongly to just 1% below pre-COVID-19 levels, but the US is still 21% lower;
- Positioning – Australia is better placed on the oil price crash, direction of trade, foreign debt and net international tourism; and
- Equity valuation – US equities discount a U-shaped recovery and super-abundant Fed liquidity. Australia is yet to discount a U-shaped recovery, let alone the stronger V-shape that we expect!
Discounting Australia’s stronger economic and earnings recovery over the next 6-12 months should drive the Australian market to decouple from the US and outperform. Unlike 2009, however, the RBA will not tighten pre-emptively, remaining super-accommodative.
Investment implications: We re-emphasise our 6500 ASX 200 index target and overweight allocation to Australian equities. Within the Australian market we prefer stocks for the restart. We have lightened further on international equities, prefer Asia emerging markets and partly hedged positions.
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