Hopes we’ll be lucky country again: VanEck

GLOBAL equity markets are hooked on “hopium” with the disconnect between weak sentiment and optimistic earnings forecasts continuing, US fund manager VanEck predicts in its latest quarterly economic outlook.

In 2023, a focus on balance sheets and cash flow will be a good starting point for investors as they seek opportunities amid the US dollar’s predicted fall and as safe-haven gold regains favour around the $US1700-to-$US1800-anounce range in the near term.

“A new wave of opportunities will present themselves and smart money anticipates this,” VanEck’s report states.

“Emotive sellers make for good buying. Anticipating the irrational fear that economic weakness can instil has historically been the platform for long-term wealth creation.”

Amid predictions of a global downturn, led by a recession in the US and the eurozone, Australia may prove itself to be the “lucky country” again.

“China’s policy shift away from Covid-zero and the RBA getting a significant amount of tightening in before wages had a chance to take off both mean it’s possible Australia could avoid a recession,” the report states. “If China can pick up pace and Australia can skirt a property/credit implosion, the Australian dollar could do well, particularly against a sliding US dollar. An easing of China trade sanctions would be icing on the cake.”

But risks persist amid the ripple effects of a global downturn just as the impact of the fast-paced rate rises in 2022 fully hit households.

“If the US and eurozone fall into a recession, Australia won’t be immune,” VanEck Asia Pacific managing director Arian Neiron said. “China’s reopening has the potential to be inflationary; however it may take some time to unravel with potential temporary supplychain hold-ups.”

On the housing market front, the nation’s fixed-interest rates cliff is unlike anything the nation has experienced.

The value of Australia’s home-loan market is about $2.1 trillion and about 35 per cent, or $735bn, of those were fixed-rate mortgages, as of early October. VanEck’s report says when the impact of rising rates fully hits households, it will be exacerbated by fixedrate mortgages rolling off to be replaced by much higher floating rates. The RBA estimates surging mortgage repayments will mean about 40 per cent of households’ spare cashflows dropping by 40 per cent or more, and up to 15 per cent will see them turn negative.

Commonwealth Bank economist Craig James said inflation peaked in Australia in the December quarter, but one further interest rate hike of 25 basis points in February to 3.35 per cent was likely.