Australia: Credit Suisse tips sharp GDP fall in 2011

Credit Suisse tips sharp GDP fall in 2011
January 10, 2011 - 3:54PM

Investors should sell resources stocks and position portfolios defensively in 2011 ahead of a likely sharp slowdown in Australia’s economic growth, according to Credit Suisse.

The global bank today voiced a position contrary to the Reserve Bank’s outlook and the market consensus, both of which expect strong growth in Australia’s gross domestic product (GDP) over the next two years.

Borrowers face high interest rates, banks are tightening lending criteria and the Australian dollar is overvalued relative to base metals prices, Credit Suisse’s analysts Adnan Kucukalic and Atul Lele told clients today.

This adds up to very tight monetary conditions, ‘‘historically consistent with a near hard-landing over the next year’’, they said in a note.

‘‘As a whole, monetary conditions are pointing to a sharp slowdown in GDP growth in 2011.’’

Most economists expect between two and four more interest rate hikes by the RBA this year, adding another 100 basis points to the current cash rate of 4.75 per cent in an effort to curb inflation pressures from China’s growth and the local mining investment boom.

Home borrowers expect the same, with Mortgage Choice reporting an increase in the take-up of fixed rate mortgages during December to buffer the hit to household budgets.

Fixed rate home loans now account for 15.22 per cent of all mortgages, up from 11.24 per cent in November when the RBA last raised the key interest rate, the national mortgage broker said.

Credit Suisse said the RBA should be cutting rates in 2011, especially if China continues to raise its interest rates to counter inflation. This would slow China’s growth, which would produce a headwind for local resources stocks.

Local investors should rotate out of resources stocks and take a defensive portfolio position, favouring interest rate-sensitive stocks such as retailers and banks, Credit Suisse said.

Although looking cheap when measured by conventional metrics, the Australian share market is expensive based on the long-term trend and should trade flat or lower in 2011, the analysts said.

The benchmark S&P/ASX 200 lost 2.6 per cent in 2010 to finish at 4745.2 points. It closed at 4712.3 points today.

AAP

http://www.brisbanetimes.com.au/business/credit-suisse-tips-sharp-gdp-fall-in-2011-20110110-19kw4.html