In March, we discussed UNSW Business School professor Richard Holden arguing that figures released by the Australian Bureau of Statistics show “we’ve now entered an effective recession in Australia.”
He explained that “two quarters of negative growth [is] a recession on a per capita basis, and the figures show a large part of that is consumer spending, growing at only 0.4 per cent in Q4. It’s a huge slice of the economy at almost 60 per cent of GDP, but it has stalled.”
According to a recent chat we had with Yarra Capital Management, though, the outlook for the Australian economy might not be quite as bleak as predicted in that article. Yarra managing director and head of Australian equities Dion Hershan said that while it’s going to be a “challenging environment” and there’s “no doubt there are various cross currents,” he doesn’t expect a recession at this stage.
He also said, though, that he doesn’t expect a “real acceleration in the economy,” adding: “The consumer has a degree of fatigue and stagnation and, for obvious reasons, we think the housing sector is moving into a down cycle. And we’re entering a challenging period for various large parts of the economy at a time when there’s a lot of debt in the system and interest rates are low. So our view is those challenges will persist.”
Yarra senior investment manager and microcaps portfolio manager Joel Fleming continued, noting that the “significant election” approaching can lead to uncertainty and “put a pause in the short term in what’s happening out there.”
But in the microcaps space, he said, “this is a section of the market that touches the whole economy, meaning you’re dealing with nimble and dynamic businesses across the full spectrum.
“Working in such a large investible universe, we’re always able to find companies that are either growing their market share or growing into new markets. It’s for this reason that we think microcaps is a really interesting part of the market to be invested in.”
Finally, Yarra Head of Australian equities research and Small Cap portfolio manager Katie Hudson noted that “as investors we don’t invest in the economy, we invest in companies. We’re funding a lot of really exciting opportunities.”
“At this time,” she said, “we’re finding some really great opportunities in the healthcare, financial services, consumer discretionary, and telecommunications sectors, but it remains very company specific and what we’re focused on is trying to find the best companies and construct them in a balanced portfolio for our clients.”
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