Challenges but also opportunities in 2024

Key insights

• We expect a sluggish economy in 2024, due to weak global growth and the lagged effects of RBA tightening. Wage inflation remains a key issue for investors.
• We view Australia as being well-positioned for the new global investment regime, with good
• long-term opportunities even if the short-term remains challenging.
• We continue to maintain a defensive posture as we expect quality, defensive and growth companies to benefit as their earnings could prove more resilient in 2024.

Progress in taming Australian inflation likely to be slow

With per capita GDP falling, the Australian economy is well and truly into the slowdown phase, though high post-Covid immigration numbers have been enough to prevent recession.

Progress towards the RBA’s inflation target (2-3%) expected by late 2025 is likely to be slow. It may be well into 2026 rather than late 2025 before the target is reached.

Sluggish economy + rising costs = earnings retreat?

Most (earnings) forecasts in 2024 are for a decline of 5% to 10%. In our view, the out-turn will likely be closer to 10% than 5%. Even then, the risk is skewed more to the downside around this consensus forecast decline.

We expect the more cyclical parts of the Australian share market to come under greater earnings pressure in 2024, which should see quality, defensive and growth companies benefit as their earnings could prove more resilient. 

Australia relatively well positioned

We remain cautious toward businesses with low pricing power, those with significant cyclical exposure or that are vulnerable to higher yields, and the more extreme growth, long-duration stocks. We have more confidence in some of the GARP (Growth at a Reasonable Price) names with strong fundamentals. While in quality, reasonably valued defensives with pricing power and in defensives that are not well-owned.