Investor expectations for global economic growth plummeted in April by the most in four years, due to the Iran conflict. A Bank of America survey, overseeing $US5111 billion in assets, showed the global economic outlook at its lowest since Russia’s 2022 invasion, while expectations for higher inflation reached pandemic-era peaks. Over two-thirds of surveyed investors now anticipate stagflation – a period of rising inflation and falling growth – within the next 12 months, a substantial jump from 51 per cent a month prior. Local fund managers warn a potential economic downturn could be more pronounced in Australia.
Matthew Haupt, a lead portfolio manager at Wilson Asset Management, stated economic growth downgrade is “definitely” on the cards. While a swift conflict resolution could see a global rebound, he cautioned Australia’s recovery might be “a bit tougher,” despite relatively stable consumer spending. This bearish sentiment aligns with IMF warnings that a prolonged closure of the Strait of Hormuz could trigger the global economy’s third recession this century. The conflict has already impacted portfolios, with the strait’s closure elevating prices for fuel and fertiliser. Strategists suggest a stagflationary episode could lead to equities sliding by as much as 30 per cent.
David Allen, head of long-short strategies at Plato Asset Management, highlighted a “sharpest monthly drops in the survey’s 25-year history” for investor sentiment, noting such declines historically precede significant market corrections. The deteriorating environment has prompted portfolio managers, like Elan Miller, Blackwattle’s long-short deputy portfolio manager, to adjust holdings. Miller identified Australian consumers, especially the mortgage belt, as vulnerable to squeezed finances from rising fuel prices and interest rates. His firm is cautious on discretionary consumer names, tilting towards defensive stocks like healthcare and lottery providers. They have also added Ampol, an Australian oil refiner and marketer, which has benefited from increased oil refining margins.
