Andrew Doherty, director of AssureInvest, said while the Reserve Bank expects that, while most mortgage holders will have positive spare cash flows, by the end of 2023 around 15 per cent of Australian households will have mortgage payments and essential living expenses exceeding household disposable income.
And this will inevitably affect any investment plans or choices, he said.
“The Reserve Bank of Australia has hesitated to raise rates given the volume of fixed-rate mortgages rolling onto higher variable rates this year,” he said.
“At least one more 25 basis point increase is likely, but solid ongoing activity and sticky inflation reduce prospects for cuts for an extended period.
“Many households have funds remaining to deal with financial shocks, though much is concentrated among higher income groups. Strong consumer spending in the past year has been supported by the running down of savings balances. However, this is unlikely to be sustained given both a rise in caution and a fall in capacity.”
It’s been reported that high-net worth individuals are steadily moving their portfolio into cash reserves, with LGT Crestone chief executive Michael Chisholm stating in sister brand ifa that equities and cash remain the two largest current investments, with real estate close behind.
However, Mr Chisolm also said this proportion dropped in 2023 as HNW Australians “widen their exposure to investments to include emerging markets and various private alternatives”.
Mr Doherty said macroeconomic factors are likely to surprise markets.
“In equities, we are preparing for tighter lending conditions and higher cost of funds given heightened rates and troubles among smaller US banks,” he said.
“Monetary tightening may conclude soon, but rates pressure cannot be relieved until inflation returns to target levels which appear some time away yet. Profit margins should be constrained by softer volumes and stubborn costs.”
He said AssureInvest is focusing on “attractively valued high-quality companies generating strong internal cashflows with less need for external financing”.
“Heightened cost pressures necessitate concentration on those able to pass these on to customers through higher prices,” he said.
“Limited outright value available in markets and a global activity slowdown that may last years mean that sustainable dividend growth will be more prominent in returns.
“We are ready for volatility with additional cash available to hunt bargains as softening economies deliver lower earnings than many in the market expect.”
