Asset consultancy Atchison is sticking with short duration and offshore equities. It says one strong session in the US doesn’t change the inflation problem at home.
The Reserve Bank of Australia (RBA) lifted the cash rate to 4.85 per cent this week, its fifth rise this year, with headline inflation at 4.3 per cent in the year to September.
Kev Toohey, principal, Atchison, says, “The midterm result has given Wall Street a lift, but that doesn’t change the picture at home. Our models already had Australia in a tough spot, with growth slowing and inflation rising.
“Oil’s had a big fall on the result, but one day doesn’t make a trend. Australia imports almost all of its fuel, so high oil prices go straight into our inflation numbers. Energy is only a small part of the share market, so we don’t capture much of the upside. That leaves the RBA boxed in.”
Toohey says Atchison is staying at the short end until inflation turns.
“We’d rather hold floating rate at the short end than lock in long bonds. If rates rise again, the income rises with them. We’d want to see oil come off and stay down, and inflation heading back into the RBA’s band, before we add duration.”
He is just as cautious on local shares, saying, “We continue to prefer offshore equities over Australian, and would treat any local relief rally with caution.”
