Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
You can access both of our platforms from a single Saxo account.
Video: Four stocks and ETFs to watch amid the ASX benefiting from China reopening and the RBA rising rates
Jessica Amir
Market Strategist
Summary: In our special edition of stocks to watch, we explore a theme, Australia’s share market as a beneficiary of China’s reopening and rising interest rates. Its market is turned to by international investors as a dividend, financial and commodity play, while it’s also deemed a proxy for China's reopening. The market has seen its biggest jump since 2020, benefiting from the rise of iron ore, copper, gold and aluminium prices, while mining giants guide for momentum to be strong in 2023, underpinned by sales to China. With the third largest ETF pool in the Asia Pacific, we explore the stocks and ETFs and baskets to track on the ASX.
Australian equities could outperform the US this year if momentum continues
So far this month, the China reopening has driven the biggest monthly jump in Australian stocks since 2020 with the ASX200 (ASXSP200.I) up 6.4%. The ASX is outperforming the US, rallying up 16% from the September low, vs the S&P500 and Nasdaq 100 which are up 12% over the same time.
The reason for this is Australia’s market is turned to by international investors as it’s a dividend, financial and commodity play and also deemed a proxy for China's reopening. The ASX is heavy in iron ore, copper, aluminum and gold companies and those commodity prices are up 70%-17% from their lows on expectations China will ramp up buying.
Resources giant BHP is expected to see 17% dividend growth, with a 12-month gross yield of 14%
BHP and Rio expect China’s property sector to underpin strong demand for iron ore this year and are driving up output as a result. Fortescue Metals also reported China started ramping up iron ore buying and it sees higher sales in first half of this year to China, with exports to rise from 4.0mt the prior quarter to 9.3mt across the next six month.
Consider the mining sector in its entirety is expected to see the strongest earnings growth for the year of 63% (Bloomberg consensus forecast). If you want to see a list of Australia’s largest Resources companies, refer to Saxo's Australian Resources theme Basket, under Research, Stocks, for inspiration.
Another important factor to consider is that there are 34 ETFs in Australia which have holdings of over 5% of BHP. Just think about this for a second. Two of the biggest resources ETF funds are BetaShares Australian Resources (QRE) with a 40% allocation to BHP, and SPDR S&P/ASX 200 Resources (OZR) ETF with 34% exposure to BHP.Australian financials including banks and insurers could also perform strongly in 2023
Financials are the other large component of the Australian share market. Their profitability is also likely to increase in 2023, underpinned by the RBA’s rate hikes. QBE Insurance (QBE) and Westpac (WBC) as examples, are the most sensitive to rising interest rates, with Bloomberg forecasting suggest 60% and 40% profit boosts thanks to higher earnings on assets. So that's something to consider.
ASX200 aggregate earnings are expected to rise 31% this year
For broader exposure to the Australian theme, consider ASX200 aggregate earnings are expected to rise 31% this year (consensus), underpinned by the above factors we have discussed.Our Australian Blue Chips theme basket is available for inspiration. It tracks 20 of the most valuable companies on the ASX. The Basket is under Research, Stocks after logging.
If you are seeking much broader exposure still, there are ETFs which track the entire market.
Australia has the third largest ETF asset pool in the Asia pacific
As China reopens, Australia could experience an increase in risk appetite and inflows The largest ETFs in Australia investing across the biggest companies on the ASX are; the Vanguard Australian Shares ETF (VAS) and the iShares ASX200 ETF (IOZ) with $23 billion of assets combined as of Jan. 30.
--
For prior episodes of Stocks to Watch click here.
For a global look at markets – tune into our Podcast.
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...