The RBA's rate outlook will likely result in investment managers favouring 'quality’companies and taking profits in small caps as rates will likely stay higher for longer

Jessica Amir wrote a column · May 6, 2024 16:30

In Australia mortgage holders and owners of ASX small caps will be on guard with RBA Governor’s press conference on Tuesday being a big focus, and whether or not potential rate hikes could be on the cards this year.

That's right, I said it. Rate hikes are on the cards after a series of hotter than expected CPI reads, and now the RBA cash rate futures are indicating a potential interest rate hike could be on the cards. I recently wrote about this and noted this here in a video. Sure the chances of a hike are small, but my videos touches on why you need to be cautious.

For more on Australian economic forecasts, read my note here.

The RBA's rate outlook will likely result in investment managers favouring 'quality’companies and taking profits in small caps as rates will likely stay higher ...

If the RBA keeps rates higher for longer, which is probable, it means investors and investment managers will probably reduce exposure to small caps that are based in Australia and are paying higher rates here. Inversely, investment managers will likely increase their exposure to ‘quality’ investments, which are those that have a high return on equity, low leverage and relative earnings stability.

The Quality Index deems the below stocks as the top 10 quality names.

If you are interested in investing in ‘quality names’ check out the list, and use the moomoo app to see their estimated profits, and earnings ahead (based on consensus).

Remember that earnings and cash flow growth, generally drive share price growth. So that may help your investment decision making.

1. Wesfarmers $Wesfarmers Ltd (WES.AU)$

2. BHP Group $BHP Group Ltd (BHP.AU)$

3. Commonwealth Bank Of Australia $CommBank (CBA.AU)$

4. Macquarie Group $Macquarie Group Ltd (MQG.AU)$

5. National Australia Bank $National Australia Bank Ltd (NAB.AU)$

6. Woodside Energy Group $Woodside Energy Group Ltd (WDS.AU)$

7. Pro Medicus $Pro Medicus Ltd (PME.AU)$

8. ANZ Group Holdings $ANZ Group Holdings Ltd (ANZ.AU)$

9. Westpac Banking Corp $Westpac Banking Corp (WBC.AU)$

10. CSL LTD $CSL Ltd (CSL.AU)$

Alternatively, if you want to invest in Australia's highest quality companies you can also do that via the Betashares Australian Quality ETF $BetaShares Australian Quality ETF (AQLT.AU)$ AQLT, which aims to track the quality index and invests across 40 high quality Australian companies.

So you would be buying the one ETF and gaining exposure to 40 companies.

Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more

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Jessica Amir

Moomoo Official Market Strategist

moomoo, market strategist. Seen/heard on Fox News Business, ABC, SBS, Reuters wires. Investor/Trader. Connect with me.

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