Temper your optimism says AB
Housing sector risks rather than a new commodities boom should be front and centre in the thinking of Australian investors, according to fund manager, Alliance Bernstein (AB).
AB senior economist, Asia Pacific, Guy Bruten has suggested that any increase in optimism about Australia's economic outlook based on recent events in US politics and the commodity markets may prove short lived.
"We just don't see any prospect of a new commodities boom helping to boost the Australian economy," he said.
"Instead our outlook continues to be dominated by risks to the housing sector — and these will increase in 2017."
Bruten said there had been an "interesting shift" in the economic debate in Australia since late 2016, with a greater diversity in outlook among economists and some even calling for the Reserve Bank of Australia (RBA) to raise interest rates this year.
"There was a surge in commodity prices towards the end of last year, an event that many people typically associate with an improvement in global growth, and optimism was further boosted by Trump's election and expectations that he will implement pro-growth policies."
Howevern Bruten said this euphoria tended to overlook the fact that economic data had already become more positive.
"Purchasing Managers' Index data and global export growth data actually began to improve from August last year," he said. "Commodity prices would have been further helped by a dramatic reduction in production capacity in China and a surge in speculative building activity there, too."
Bruten said commodity prices had already started to come back, however, as had the climb in US Treasury yields, which had been triggered by expectations that Trump's promise of fiscal stimulus to lift the US economy would result in stronger growth and a resurgence in inflation.
"Markets have moderated their positive response to Trump's victory while they await further details of his policies, and also assess how successful he might be in implementing them," he said. "His policies include a more protectionist stance on trade, which would be a negative for commodities and other exports."
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