ASX 200 outperformed MSCI world share market index in 2022, JPM optimistic on 2023 Oz outlook

The RBA will conduct one more rate hike of 25bp before entering into an extended pause with a 3.10% rate. 

That is the prediction made by JP Morgan in its 2023 Outlook Report, wherein the investment bank includes fairly reassuring forecasts for Australia’s economy wholemeal over the coming twelve months. 

Of foremost interest to Market Index readers may be one factoid JPM highlights for the Australian stock market’s 2022 performance.

For the first time in a decade, the ASX 200 has outperformed leading aggregate global share market product MSCI World Index. Financials and Materials were the two sectors most responsible for maintaining the uplift. 

Not great, not terrible 

But let’s not get ahead of ourselves: it could be luck. 

Australia has, in many ways, avoided the worst economic outcomes of the post-covid world being experienced elsewhere around the globe right now, and performance ought to be viewed in this light. 

The drought-breaking ASX 200 run this year may very well be little more than a circumstance of our relative geographic isolation from the same pressures causing worse outcomes in Asia, North America, Africa, and Europe. 

Still: a point of national pride, at the very least. 

Inflation remains, but unemployment to grow

With regards to ongoing macro headwinds, JP Morgan doesn’t shy away from noting Australia is expected to see ongoing cost-of-living inflation.

However, it has gone so far as to call household balance sheets “by and large robust.” 

The investment bank also sees unemployment rising in 2023, which is bad news for anyone needing to work who finds themselves stranded, but good news for the overall inflation picture. 

It expects Oz unemployment to be less dramatic than the US and the EU’s; both regions are tipped for recessions, whereas we aren’t. 

Isn’t unemployment bad? 

Low unemployment rates in major economies are, unfortunately, a factor keeping inflation higher, instead of lower. 

More people with more discretionary income means more spending, and Australians are still doing a lot of spending (even though many are also taking out more credit cards.) 

Macquarie Bank on Tuesday identified that Australian home furniture spending peaked above the pre-covid average during Black Friday sales late last month, thought to be good news for Nick Scali (ASX:NCK). 

Travel picking back up 

In another note put out Wednesday, JP Morgan cited travel activity recovery in Australia. 

Hong Kong lifting all arrival travel restrictions the bank expects to improve sentiment overall in Australia, and the bank notes ongoing support from Asian markets in building Australla’s visitor numbers back to pre-covid levels. 

On that front, we’re actually over halfway to getting back to the 2019 “baseline,” outlined in the chart below. Officially, we’re at 69.4% of 2019 levels.

Source: JP Morgan (December 2022)

Of that 69.4% recovery, 36.7% of that segment was leisure travel (read: normal holidays), up from only 30.1% in September. 

The main source countries of those travellers were New Zealand (20%), UK (9.7%) and the US (8.6%). 

Because of reasons that probably don’t need explaining, China has fallen off the list, for now. 

One small concern 

While JPM expects recessions in most major economies more stock market lows in 1H 2023, before a happier 2H 2023, eagle eyed readers looking at JPM’s note today may have spotted something of possible concern. 

The bank expects the price of Brent Crude (the international oil benchmark which is instrumental in informing Australian petrol prices) to “exit 2023 at US$96/bbl.” 

JPM advises readers to buy into commodities if they fall back even further on recession fears, given that it believes we are in a commodity supercycle with supply-demand imbalance “likely to persist for years.” 

Oil was floating near $100 when inflation shocks were at their absolute worst earlier this year (and in late 2021), and OPEC’s supply cut from a month or two ago, widely seen as intended to drive prices back up, was criticised for being likely to extend global economic recovery. 

Don’t take my word for it: that warning came from the International Energy Agency in October this year. Luckily for us, it isn’t rare for an oil price forecast to be completely wrong. 

But, still…keep that in mind.