The future looks bright: Here’s why this investment firm is doubling down on ASX shares in April

Can ASX shares continue to outperform in 2022? Let’s take a look.

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Key points

  • ASX shares have been outperforming global equities in 2022, with one investment firm predicting more good times to come
  • T. Rowe Price has upgraded its position in Australia equities to 'overweight' in April
  • Here's what the firm believes will boost ASX shares in the near term

ASX shares have been outperforming many of their global counterparts in 2022, and one firm believes the party will continue for stocks listed down under.

Global investment management firm T. Rowe Price has upped its position in Australian equities this month, moving it to ‘overweight’.

So, what’s got the international investment firm feeling bullish about Australia? Let’s take a look.

Why is this investment house bullish on ASX shares?

The global market is struggling this year, but ASX shares are bucking the trend.

As the chart below depicts, the S&P/ASX 200 Index (ASX: XJO) is outperforming both the S&P 500 (SPX) and the Nasdaq 100 (NDX) in 2022.

TradingView Chart

And, according to T. Rowe Price, the near future could bring even more gains for ASX investors.

Its bullish sentiment for ASX shares is born from Australia’s location, its pandemic response, recent decisions made by the Reserve Bank of Australia, and the ASX’s weighty materials sector. The firm commented:

By its geography, Australia is, first: isolated from the geopolitical tensions and, second: a beneficiary of the re-allocation of commodity trading activity.

The domestic economy emerged from the last COVID lockdowns on a solid footing: unemployment is down, PMIs [purchasing managers’ index] still in expansionary mode, and business surveys suggest this should continue in the near term.

While elevated, inflation is only slightly higher than the RBA target range, implying a lower burden to the economy relative to other developed economies.

These positive drivers have been seen by the outperformance of the Australian stock markets year to date.

Given optimism in recent earnings revisions, T. Rowe Price believes ASX shares could continue to outperform “in the near term”.

T. Rowe Price is also overweight on Australian government bonds following their recent underperformance. Though, it’s dropped some of its holding in Australian yields, saying they might soon be over-extended.

The firm’s also keeping an eye on business conditions lest they slump on supply and labour shortages.

Finally, it’s wary the RBA’s “dovish” approach could be unsustainable. In fact, the firm warns of potential volatility when the RBA’s stance catches up with market expectations.

T. Rowe Price dumped some of its holdings in Japanese and emerging markets to fund its new position in ASX shares.

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