Australia Stock Investors Look Past Recession to Bet on Recovery

(Bloomberg) -- Australian shares are slowly recovering from the March sell-off even as the global economic outlook gets gloomier with the fresh trade discord between the U.S. and China.

This week the stock benchmark Down Under is on track to record the best gain in about a month. The prospects of the first recession in almost 30 years and little-to-no corporate earnings growth this year aren't fazing investors amid the coronavirus pandemic. Instead, they're looking past bleak projections and buying stocks based on how companies will perform in the inevitable rebound.

“Markets have already priced in the expectation of recession in the U.S., Australia and globally, and are now looking through the negative data with more confidence,” Ausbil Investment Management Ltd. Chief Investment Officer Paul Xiradis said. “It is now a ‘buyer's market' for carefully selected, high-quality stocks that stand to benefit from global stimulus and the eventual shift to recovery.”

As plans emerge to ease lockdown restrictions, global equity benchmarks have rallied from March lows. In Australia, preparations to loosen restrictions have helped lift some of the most virus-exposed stocks. The nation's big-four lenders all have gained since National Australia Bank Ltd. kicked off a horror bank reporting season last week, and Qantas Airways Ltd. rose on Tuesday despite warnings of a years-long revival.

Investors are downplaying the August reporting season as an “outlier on dividends compared to normal years,” Xiradis said, adding that he expects this has already been reflected in prices. Dividend forecasts have been cut the most since 2009 for listed Australian companies, exceeding payout reductions on other major markets.

With Australia's economy expected to contract about 10% in the June quarter, policy leaders assembled a massive fiscal-monetary package to aid households and firms, while low interest rates are also seen supporting stocks over the long-term.

Still, the S&P/ASX 200 Index remains down about 25% from its Feb. 20 peak. Uncertainties also abound about how much of a long-lasting impact the pandemic will have on the global economy. Any prolonged slump in commodity demand will hurt the Australian economy disproportionately given its reliance on the sector.

Floundering Australian Stocks Could Return to March Rout Levels

“Market conditions are starting to feel like those we saw in the early days of the global financial crisis,” said Karen Jorritsma, head of Australian equities at RBC Capital Markets. The benchmark earlier this week embarked on a “relatively conviction-less rally” amid data that “continues to look bearish.”