Rudi's View | 5:15 PM
This week's updates on strategy and preferred stock picks.
By Rudi Filapek-Vandyck, Editor
By Rudi Filapek-Vandyck, Editor
Economists at the National Australia Bank (NAB) formulated it as follows: "For the RBA the appropriate stance will be to remain broadly around neutral, for now".
Equity strategists at Morgan Stanley --Chris Nicol and Chris Raad, or simply Chris & Chris-- had already been on the ticket for a prolonged pause in RBA policy action, even before Thursday's local data releases triggered yet more pricing out of RBA rate cuts for the medium term.
The direct impact on the local equity market is there for everyone to witness with the ASX200 experiencing yet another downday on Thursday.
The Big Question remains what all this means for economic momentum as that might ultimately decide whether the RBA is truly done with rate cutting or whether it needs to start tightening instead before long.
Chris and Chris are still of the view the RBA's pause will have a negative impact on dwelling construction and consumer spending, which will reverberate for local businesses still battling persistently high costs.
Their view is therefore that, with hindsight, the market's previous exuberance regarding discretionary retailers and other consumer-related stocks, as well as for construction-related exposures, was simply over the top and this has been swiftly corrected throughout the weeks past.
Open up a price chart for discretionary retailers and that downward correction instantly shows itself.
Chris and Chris are of the view this year's economic surprise on the back of RBA rate cuts already delivered is likely to now trigger a slowdown.
Not a big disaster, but a noticeable slowdown nevertheless. If this anticipation proves correct, the RBA will eventually start thinking about more rate cuts yet again.
But investors should not get overly excited at this stage. Such reversal is considered unlikely for the first half of 2026 and in the meantime the domestic economy will start exhibiting a patch of weakness.
This, both strategists suspect, might well keep a lid over share prices for building- and consumer-related businesses for longer -- maybe even for the market generally?
One caveat is recent consumer sentiment readings suggest less sensitivity than expected, but maybe the prospect of a prolonged pause hasn't genuinely sunk in yet? Or are Chris and Chris too downbeat?
Sector analysts at Macquarie recently expressed their preferences for JB Hi-Fi ((JBH)), Harvey Norman ((HVN)) and Coles Group ((COL)), with an ongoing negative view on Endeavour Group ((EDV)).
Incidentally, the monthly NAB business survey showed business conditions are now running firmly above long-run average, supported by better trading conditions and higher profitability. Even capex intentions are now above average (employment is not).
With AI and technology stocks equally out of favour --adhered to some cyclicality being present in that sector too-- it makes sense to both Morgan Stanley strategists to have plenty of portfolio exposure to energy and materials companies as global growth in 2026 should be well-supported through further Fed rate cuts and the likes of China issuing more stimulus.
Talking about materials, Rio Tinto ((RIO)) is organising its Capital Markets Day (i.e. presentations to analysts and investors) on December 4th in London and analysts at Barclays predict the event will prove positive for the share price.
Management is expected to announce more cost cutting (potentially -US$1bn over three years), portfolio restructuring (asset sales by any other name), moderated capex and growth ambitions in lithium, as well as potentially an asset swap with Chinalco which then allows the company to start share buybacks.
Rio Tinto is now the laggard vis a vis BHP Group and any signs of the gap closing should be well-received, Barclays suggests.
Returning to Australia and the RBA, UBS points out investor lending now makes up around two-fifths of total new housing loan commitments each quarter in Australia.
The strength in investor housing lending has come amid the decline in mortgage rates and also near record low rental vacancy rates.
As yet again revealed in the latest lending data, new housing lending continues to rise as home prices and housing demand have increased.
The value of new housing investor lending surged 17.6% q/q to record highs, with owner-occupier lending still up a strong 4.7% q/q.
First-home buyers made up one-fifth of new loan commitments in Q3 and UBS suggests activity will have been supported from October by the government's expanded deposit guarantee.
An earlier strategy update by UBS shows more optimism than expressed by Chris and Chris, with UBS strategists of the view the impact from the three RBA rate cuts delivered in 2025 has not yet fully been transmitted to consumers in Australia.
UBS therefore does not anticipate the slowdown predicted, but instead argues recent years have proven RBA rate moves carry less impact.
No more rate cuts locally should thus not prevent the ASX from posting further gains, also because elsewhere (Federal Reserve) there's still stimulus being injected.
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