economic update mark rider, head of investment strategy

Economic UpdateMark Rider, Head of Investment Strategy

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Global growth: better and worse

The Transition Twins: China and Australia

Equities: home, away or just stay away?

What it all means for your clients

Three themes and their implications

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Global Growth - better as at long run trend …

Source: Thomson Reuters Datastream, ANZ Global Wealth

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… and unemployment has fallen a long way


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But worse as lower trend growth means lower returns

Source: Bloomberg, ANZ Global Wealth

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Growth has disappointed this year…

2015 ANZ Forecast Dec 14


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Weaker potential growth lower interest rates

DM avoids home grown deflation end to negative rates

Weak EM imparts a deflationary shock lower rates, commodities, resources stock and AUD

Bottom line: Interest rates to remain low

Implications

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China – slowdown you move to fast


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A slowdown where it hurts Australia

Source: Bloomberg, Thomson Reuters Datastream, ANZ Global Wealth

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It’s not all bad news, just different

Source: China National Bureau of Statistics, ANZ Global Wealth

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The economy may be slower than GDP suggests

Source: China National Bureau of Statistics, ANZ Global Wealth

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Where will it end?


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Where will it end?


?

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As China’s nominal growth collapses…


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As China’s nominal growth collapses…


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A capex cliff looms

Source: Australian Bureau of Statistics, ANZ Global Wealth

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Housing is the only source of growth

-3.0% -0.5% +0.5%

Source: Australian Bureau of Statistics, ANZ Global Wealth

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AUD remains under pressure


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China not growing how it used to lower commodity prices

Australian capex cliff sub trend growth and lower rates

A$ under pressure

Implications

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Equities – home, away or just stay away?


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It’s all to do with earnings


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Current versus “mid cycle” earnings


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Equities – reasonable value


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Home or away?

3.8

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0.3

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1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014

Australia's Terms of Trade and Equity Performance

Relative Performance (LHS) Terms of Trade (RHS)


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Equities – no longer cheap, but not really expensive

Earnings growth likely issue for Australia and EM

Falling terms of trade favours DM over Australia

Implications

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10 year bond yields – where to now?


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Lower expected returns in prospect

Source: Mercer, Bloomberg, ANZ Global Wealth

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Forces continue for low interest rates but now poor returns

Equity valuations okay, but earnings growth the issue

Prospective returns have moderated

Tactically cautious

Conclusions

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This information is issued by the Australia and New Zealand Banking Group Limited (ABN 11 005 357 522, AFSL 234 527). The information is current as at 20 August 2015 and will be subject to change.

The information is of a general nature and has been prepared without taking account of your or your clients personal needs, financial circumstances or objectives. It is intended for informational purposes only.

Whilst every effort has been taken to ensure the information used is accurate and reliable, no warranty is given as to the accuracy of the information and no liability is accepted for your reliance on the information.

The views expressed are those of the presenters based on their interpretation of current market conditions and data.

Statements made during the presentation do not and are not intended to represent financial advice or a recommendation to hold, acquire or dispose of any investment.

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Disclaimer

economic update mark rider, head of investment strategy

Documents

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thomson reuters datastream