Citi Sees More Cause for Bulls to Be Upbeat on Australia Stocks

(Bloomberg) -- Australia’s stocks have defied a sluggish economy to rally this year -- and may have room to keep on going, according to Citigroup Inc.

This week’s interest rate reduction and the possibility of another, improved attitudes toward the housing market and expected tax cuts could lead to an upturn in second half of the year, analysts led by Tony Brennan said in a note.

“Policy easing and improved sentiment often precede a trough in growth,” Citi wrote.

Australia’s benchmark S&P/ASX 200 Index has soared 14% this year, dethroning New Zealand as the Asia Pacific’s best major stock market in 2019. The gauge has eluded the uncertainty surrounding the federal election, an inquiry into financial-industry misconduct and a worst-in-a-generation housing slump. Now risks facing the Australian market “seem less, even though the economy’s growth has slowed,” the analysts wrote.

The optimism comes after data showed Australia’s economy expanded at the slowest pace in almost a decade as the property downturn weighed on consumer spending. Gross domestic product advanced 0.4% in the first three months of the year from the prior quarter, according to Australian Bureau of Statistics data released Wednesday.

Citi analysts also caution that trade tensions still pose a threat to markets globally, but signals that the Federal Reserve may also cut rates could provide some relief.

To contact the reporter on this story: Jackie Edwards in Sydney at jedwards160@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Margo Towie, Adam Haigh

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