Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 458

Australia, the Lucky Country again?

We may have been extremely unlucky with the unforgiving weather plaguing the East Coast of Australia this year. However, on the economic front we are by many measures in a strong position relative to the rest of the world. This was partly reflected by the ASX 200 claiming pole position versus most major markets in March.

There is a tall wall of worry that has stood forebodingly in front of investors of late. Yet, many of these issues such as the war in Ukraine, monetary tightening, inflation, (or its more feared cousin, stagflation) vary in their degree of severity across regions.

For example, Europe's growth and company earnings outlook has been severely marred by the ongoing war in Ukraine that has led to punitive sanctions on Russia. Across the Atlantic, US inflation is at its highest since Olivia Newton-John's “Physical” topped the charts (December 1981), forcing the Fed to move aggressively, while recession risks continue to rise - the latest warning indicator was the US 2 and 10 year spread flipping negative earlier this month (Chart 2).

Growth for the US and major European economies have been downgraded in the wake of those developments. Conversely, the economic outlook for Australia is relatively positive. We are far enough removed from the conflict in Europe to avoid direct impacts and stand to benefit from Russian sanctions. Our main geopolitical risks are closer to home as highlighted by the recent developments in the Solomon Islands. Similarly, the inflation picture had been much less heated than offshore (particularly the US). However, this week’s CPI figures suggest this may be more of a timing issue. Higher domestic inflation can be expected to translate into faster action from the RBA to raise interest rates to slow the economy. We believe the strong commodity price environment, high level of domestic savings and tight labour market will help provide support to the economy, but inevitably an economic slowdown is required to get inflation back under control. The risk is that we get tipped into recession in the process.

The recent surge in prices across the commodity complex, from agriculture to metals, provides a large uplift to our terms of trade. There has been a sizeable gap in some commodity trade created by sanctions on Russian exports.

Australia can help to plug that gap as a top exporter of many of the same commodities (Chart 3). Moreover, our largest trading partner China, is moving in the opposite direction to most by embarking on monetary easing and fresh fiscal stimulus.

Hence, it is not surprising that the miners and energy players have been among the top performers locally this year. At the same time, not all of these commodities enjoy the same outlook. Oil and gas names have benefited from the spike in energy prices. However, longer-term the terminal risks for the sector have increased. The importance of energy security is front-and-center and as such the need to shift to renewables has accelerated. This has reinforced our long-term preference for those commodities leveraged to electrification - nickel, zinc, copper and lithium for example.

More broadly, the Australian equity market’s earnings outlook has improved relative to peers, who are in contrast facing earnings downgrades. Further despite the price correction offshore, valuations are also more attractive than markets like the US with a larger than average P/E discount that has persisted throughout the pandemic (Chart 4). These factors combined with the relatively stronger economic outlook have driven an increased allocation to Australia from Global asset allocators, who are for the first time in many years increasing their weighting to the Australian Equity market.

Overall, the global investment landscape is certainly not rosy. We have written many times that we have passed the peak of global economic momentum. Australia is also poised to decelerate. However, we are in a relatively stronger position to endure some of the global storm fronts. If only we could be as fortunate with our own weather fronts.

 

Randal Jenneke is Head of Australian Equities and Portfolio Manager at T. Rowe Price. This article is general information and does not consider the circumstances of any investor.

 

  •   18 May 2022
  • 2
  •      
  •   

RELATED ARTICLES

Putting portfolios together when the world is falling apart

Why is Aussie inflation so stubborn?

Shares rebound on hopes of war ending, but stalemate the likely outcome

banner

Most viewed in recent weeks

Noel Whittaker’s take on the budget

Marketed as a fix for inequality and housing affordability, the latest budget instead delivers a tangle of tax changes that leave everyday Australians worse off.

Australia has no death duties. Technically.

Australia may not levy formal death duties, but a growing web of tax measures is quietly shaping what wealth passes between generations. Now, the 2026 budget adds another layer.

Welcome to Firstlinks Edition 662 with weekend update

The debate over the budget is increasingly shaped by frustration and perceptions of unfairness, rather than clear-eyed assessment of policy outcomes.

How to minimise tax with a will

Inheritance tax implications in Australia may surprise some, as poor estate planning without proper wills or trusts can lead to costly tax bills and delays for beneficiaries.

How inflation is quietly moving the goalposts on retirement

Inflation doesn’t just raise today’s bills - it quietly increases the amount needed to retire, while simultaneously making it harder to save. Three steps to take before June 30th to improve retirement outcomes.

Back to the future - Why indexing CGT is a good idea

A return to indexation of capital gains would be a fairer way to compensate households for the effects of inflation than the current discount. Importantly, it opens the door to future, broader reforms to stop the taxation of inflation.

Latest Updates

Investment strategies

High quality businesses are on sale

Beneath the dominance of the ASX's largest stocks, much of the market has been left behind. High-quality companies are now trading at levels rarely seen, offering opportunities for investors willing to look deeper.

Investment strategies

The whirlwind is upon us

Something unusual is happening in markets. The winners are pulling further ahead at an extraordinary pace. As return dispersion hits extreme levels, volatility is rising and the investing landscape is becoming harder to navigate.

Strategy

Inequality destabilises economies

Extreme wealth concentration is no longer just a side effect of growth. As inequality deepens, its consequences are shifting from a social concern to a broader threat to economic stability and democratic resilience.

Investment strategies

Have AI’s four horsemen arrived?

AI exuberance is colliding with economic reality. Cracks are emerging as spending surges, ROI remains uncertain and enterprise behaviour shifts. The next phase may look less like an expansion and more like a reckoning.

Taxation

Budget tax changes only scratch the surface. Here are 4 reforms Australia needs next

The 2026 budget has reignited Australia’s tax reform debate, but more work remains. Beneath the surface lies a harder question: what structural reforms are needed to make the country's tax system fit for the future?

Taxation

Negative gearing: quarantined, not killed

The Budget's negative gearing changes defer deductions rather than deny them, yet a worked example shows quarantining can halve the tax benefit's present value for buyers of established dwellings.

Investment strategies

Family offices have quietly taken over Australian private capital

In just four years, Australia's private capital landscape has transformed. We are seeing changes across who deploys capital, how deals are structured and why new platforms and investor pathways are rapidly emerging.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.