According to T Rowe Price Group Inc (NASDAQ: TROW) head of Australian equities Randal Jenneke, the current situation bears similarities to the 1970s "stagflation" era.

"Headlines feature daily around the rising cost of fuel, electricity and commodity prices," he said.

"At the same time, a tight labour market sparks worries of a wage-price spiral and broader fears of a hot and embedded inflation that will be difficult to cool."

Thankfully, though, there are some differences. For example, the energy shortage is much more acute in Europe this time, as the US is a net exporter — not an importer as it was back in the 1970s.

"Consumer and corporate balance sheets are also stronger… The lessons from the stagflation period are still very real in the minds of central bankers and they are likely to do whatever possible to ensure we do not repeat history," said Jenneke.

"With this in mind, we view a stagflation replay as only a 15% to 20% chance."

Regardless, investors still need to be careful. 

Jenneke suggested buyers of ASX shares need to move their focus from revenue growth to margin sustainability.

"A repeat of the 70s stagflation era is not our base case. However, the parallels continue to grow."

Nothing beats setting your own prices

So which businesses can protect their margins in times of rising input costs and cooling consumer sentiment?

"Those that can better manage through this period will likely be companies with strong pricing power," said Jenneke.

"To pass on costs effectively to buyers requires a good industry structure, differentiated products and defensive volumes."

The T Rowe Price team reckons the healthcare industry fulfils many of those criteria.

Jenneke singled out one name in particular.

"Resmed CDI (ASX: RMD), for example, has a large underpenetrated market," he said.

"And despite various input and logistics cost pressures, has been able to pass through price increases given their dominant market share and current lack of reputable competition."

Infrastructure also has the pricing power that Jenneke's analysts are currently seeking.

"Transurban Group (ASX: TCL), for example, has built-in price increases for its contracts. The nature of its cost structure brings high EBIT margins and margin stability," he said.

"Anecdotally, you know the cost of tolls are rising when every second taxi driver makes a point or two about it."

One important note about these ASX shares is that Jenneke very much likes the businesses independent of the economic headwinds.

"Another lesson from the 1970s is that the global macro picture does not trump company fundamentals," he said.

"For example, both the US and UK faced a similar stagflation narrative. However, UK banks performed terribly amid a severe property price crunch, while their US peers outperformed."

The post Pricing power: 2 ASX shares that can fight stagflation appeared first on The Motley Fool Australia.

That's the opinion of T Rowe Price Group Inc (NASDAQ: TROW) head of Australian equities Randal Jenneke, who said ASX shares look "cheap" right now.

"As a result, global money managers have been directing more money toward the Australian stock market," he said.

"Australia's cheapness partly reflects its composition and the greater share of value sectors in the index."

One of the dominant sectors that shape the "composition" of the ASX is mining.

Even after the market panic in the past week, the S&P/ASX 300 Metals & Mining (ASX: XMM) is up 0.4% for the year to date.

So which are the mining shares Jenneke's team favours at the moment?

'Globally significant, long-life, low-cost lithium asset'

The T Rowe Price team is a believer in the carbon reduction theme, and how particular minerals may see increased demand because of it.

"We like certain metals including lithium and copper as electric vehicle plays," said Jenneke.

"For example, Allkem Ltd (ASX: AKE) possesses a globally significant, long-life, low-cost lithium asset that is leveraged to the growing demand for lithium-ion battery technology and energy storage."

Allkem stocks, like other ASX lithium shares, have really cooled off in recent weeks. They have lost about a quarter of value this month.

Shaw and Partners portfolio manager James Gerrish said earlier this month that lithium is hard to substitute in a modern battery.

"It is a light metal but is able to store large amounts of energy and is an excellent conductor of electricity."

Cashing in on Chinese real estate revival

The other mineral that Jenneke thinks will enjoy hot demand is iron ore.

And among its producers, his team favours ASX 200 share Rio Tinto Limited (ASX: RIO).

"We think Rio will likely be supported by improved stability in the Chinese property market and significant additional stimulus in the form of infrastructure investment."

Analysts at Macquarie Group Ltd (ASX: MQG) are also fans of Rio Tinto shares.

"There are expectations that Rio Tinto will pay a grossed-up dividend yield of 15.8% in FY22 and 10.9% in FY23," reported the Motley Fool's Tristan Harrison earlier this week.

The Macquarie team has reportedly placed a stock price target of $135 for Rio, which is a 26% premium on the Friday closing price of $107.10.

The post The lithium and iron ore ASX shares that I like right now: expert appeared first on The Motley Fool Australia.

US investors panicked on Monday night after awful inflation numbers were revealed, which the Australian market replicated on Tuesday.

Then Wednesday night the US Federal Reserve ratcheted up interest rates by an eye-watering 75 basis points.

That added to the pain here in Australia from a 50-point hike just a fortnight ago.

So what will happen to ASX shares from here?

T Rowe Price Group Inc (NASDAQ: TROW) head of Australian equities Randal Jenneke took a stab at how it could play out over the next few months.

Aussie Aussie Aussie

Although the markets agreed that inflation is out of control and central banks are right to try to tame it, the magnitude of action required without triggering a recession is notoriously difficult to judge.

"In 75% of rate hiking cycles since the 1950s, a US recession has followed," said Jenneke.

"Australia, as a small, open economy, was only able to avoid following suit in three out of the last 11 US recessions."

The bright side for ASX shares is that Jenneke expects it to outperform other markets for the rest of this year.

"Australia will likely benefit from increased exports of liquid natural gas and coal to Europe due to tighter sanctions on Russian energy," he said.

"At the same time, more fiscal stimulus to support growth in China could help to support the price of iron ore, even as the global economy slows."

The Australian market "currently looks cheap", according to Jenneke, so global capital has been flowing into the ASX.

"Australia's cheapness partly reflects its composition and the greater share of value sectors in the index. It also reflects the fact that the RBA was less enamoured with quantitative easing policies after the global financial crisis and more recently in response to the coronavirus pandemic," he said.

"As a result, Australia has created less excess local liquidity to distort domestic equity valuations."

ASX growth shares to make a comeback

Growth shares have suffered greatly over the past six months as investors turned away from them due to the prospect of rising interest rates.

But Jenneke feels like the tables will turn in the second half of the year.

"As the year unfolds and recession fears multiply, value stocks are likely to feel the most pressure," he said.

"For the second half, we expect quality growth stocks to perform better in the face of a continuing earnings slide."

Specifically, the T Rowe Price team has increased its investment in "defensive growth", which typically is seen in sectors like consumer staples and healthcare.

The revival of ASX growth shares will come as markets move on from the current obsession with inflation and interest rates.

"After a period of stagflation, we believe recession risks will come to dominate equity markets in 2023," said Jenneke.

"We believe it is better to prepare for what is likely to come in 2023 — slowing growth and rising recession risks — rather than to dwell on what stares us in the face today."

Even though net interest margins for the big banks will increase as interest rates head north, Jenneke would stay away from those ASX shares.

"Their earnings may look reasonable now, but they have the potential to weaken sharply in six to 12 months' time when rising non-performing loans as a result of slower growth outweigh the benefits of wider net interest margins."

The post This is what will happen with ASX shares for the rest of 2022: expert appeared first on The Motley Fool Australia.

After more than 11 years, the Reserve Bank of Australia has increased the cash rate.

Incredibly, there was an entire generation of investors and homeowners who have never directly experienced interest rates going up. 

With more rate rises expected later this year, it's an uncomfortable feeling that they will have to get used to.

"We expect another increase in the cash rate in June (probably of 0.25% but it could be up to 0.4%), a rise in the cash rate to 1.5% by year end, and to 2% next year," said AMP Ltd (ASX: AMP) chief economist Dr Shane Oliver.

For those reading The Motley Fool, I'm sure you're keen to find out what the consequences are for ASX shares.

While no one has a 100% accurate crystal ball, some experts have looked back at past situations to figure out what might happen in 2022.

Rates and shares: not a simple relationship

Intuitively, one might think rising rates will cause the share market to fall. People have less money to spend or invest, so less demand for goods, services, and stocks.

But historically it hasn't been as simple as that, according to Oliver.

"There is an ambiguous relationship between rising interest rates and the Australian share market," he said on the AMP blog.

"While higher rates place pressure on share market valuations by making shares appear less attractive, early in the economic recovery cycle this impact is offset by still improving earnings growth."

Certainly, on some occasions, share prices have fallen with increasing rates. But other times, the All Ordinaries Index (ASX: XAO) has done the opposite.

"For example, between 2003 and 2007, shares went up as interest rates rose, with shares only succumbing in 2008 after multiple rate hikes over several years and with the GFC."

ASX shares to tread water in 2022

Oliver suspects 2022 will be one of those times when ASX shares will not plunge because of interest rates alone.

"Firstly, rising rates from a low base are normally not initially bad for shares, as they go with improving economic conditions," he said.

"Secondly, rising interest rates are only really a major problem for shares when rates reach onerous levels (i.e. above "normal"), contributing to an economic downturn."

Also, even if the RBA cash rate hits 1.5% by the end of the year, returns paid out of bank deposits would still be less than 2%. This would mean plenty of demand for shares from investors seeking decent yields.

"Finally, given the high short term correlation between Australian shares and US shares, what the [US Federal Reserve] does is arguably far more important than local interest rates," said Oliver.

"And this is perhaps a bigger risk given higher inflation in the US."

While rising rates may not bring down the stock market on its own, Oliver admitted it will be a bumpy ride.

"An environment of rate hikes will likely result in a continued period of volatility for shares."

Has the RBA lost credibility?

T Rowe Price Group Inc (NASDAQ: TROW) associate portfolio manager Scott Solomon felt blindsided by the magnitude of RBA's move on Tuesday.

"The Reserve Bank of Australia pivoted [to] hawkish and did so with a bang, raising rates to 35 basis points, which was higher than what [the] market anticipated," he said.

"This comes after more than 12 months of dovish commentary — including a very firm view of no hikes until 2024 — and underwhelming economic forecasts."

For Solomon, the central bank has lost credibility because of this.

"It's very difficult to foresee RBA's future actions based on its statements and forecasts," he said.

"The market had been screaming about factors that would imply and demand potential rate hikes and the RBA had in the past responded with a call for patience, and grim economic forecasts followed by reminders of how inflation is different in Australia."

He added the RBA must now further address market concerns to calm a volatile situation.

"I think what the market wants is an answer to what caused the RBA to finally flip the switch."

The post What rising interest rates can do to ASX shares appeared first on The Motley Fool Australia.

That's the opinion of T Rowe Price Group Inc (NASDAQ: TROW) head of Australian equities Randal Jenneke, who warns there's a "very real prospect of a 5% to 10% market correction" this year.

Jenneke says: "The recent dramatic fall in the iron ore price is a good example of our concerns."

AMP Capital chief economist Dr Shane Oliver agrees, saying local "shares may still have more downside" and that a correction is on the cards before 2021 is done.

Lockdowns in Australia are killing the mood

While the half-year results season in February was very optimistic, the Delta strain of COVID-19 had since soured sentiment for ASX shares.

"[A] victim of the east coast lockdowns was the upbeat earnings outlook from earlier this year," Jenneke said. 

"We saw roughly twice as many downgrades as upgrades for FY22 earnings growth estimates. This was a big shift from half-year results, which was one of the best from an earnings vs. upgrades perspective in decades."

The next big problem for ASX shares

The change in international liquidity is the next major hurdle for Australian stock portfolios, according to Jenneke.

"Tapering is coming and the credit impulse of the world's three largest economies [USA, China, European Union] is already negative," he said.

"Combined with earnings growth sliding into downgrade territory [and] still-elevated PE dispersion, we are likely to see investors become ever more focused on stock fundamentals."

The next round of updates from ASX companies is due over October and November when AGMs will be hosted. It's also the season for stockbroker conferences.

Jenneke warns ASX investors to prepare for disappointment over this period.

"We believe these updates are more likely to disappoint overly rosy market expectations," he said.

"Earnings downgrade cycles come in waves — only the first one has broken!"

How T Rowe Price has its portfolio positioned

Considering these upcoming risks, Jenneke reveals how T Rowe Price has shifted its Australian stock composition to negate the effects.

"We shifted our positioning away from domestic cyclicals and more towards higher quality defensive businesses, reflecting our concerns about slowing growth, rising earnings risks, high valuations, and diminishing government and central bank support for markets," he said.

"This view is rapidly becoming consensus but isn't quite there yet, with some investors remaining stuck in the reflation camp, albeit in smaller numbers."

The post There's a shock coming for ASX investors: expert appeared first on The Motley Fool Australia.

That's the opinion of T Rowe Price Group Inc (NASDAQ: TROW) head of Australian equities Randal Jenneke, who said the country has "likely passed the peak" of the post-COVID economic recovery.

"We believe GDP growth and inflation expectations will cool over the year," he said this week.

"The latest lockdowns in NSW and Victoria are poised to further curb some of the market's enthusiasm for ongoing strong economic growth."

Types of ASX shares that are good in slowing economies

According to Jenneke, slowing economic conditions favour what he called "quality" stocks.

"Historically, the highest ranked companies in the category have outperformed the lowest ranked by 1.8% each month on average during decelerating growth periods," he said.

"Conversely, they have underperformed by -2.2% per month during recovery periods… With the strong rebound in growth during the second half of last year, the bucket experienced its worst return in close to a decade."

Jenneke also showed the same pattern happening during the global financial crisis, dot-com bust and the 1997 Asian financial crisis.

"While we may not be entering another downturn of such magnitude, we are moving towards an impending slowdown," he said.

"As we do so, we have already seen quality start to return to favour. It was the best performing factor in June and year-to-date it is now second only to the much-hyped value rally."

So what is 'quality'?

Jenneke explained that, to his team, "quality" meant strong return on capital and resilient earnings growth.

He put up 3 examples of quality ASX shares that T Rowe Price recently increased its exposure to — Resmed CDI (ASX: RMD), Goodman Group (ASX: GMG) and CarSales.com Ltd (ASX: CAR).

"Over more than two decades of data for the Australian market, high quality had outperformed low quality by 6.7% per annum," he said.

"With many of these factors in mind, we believe the school of quality is back in session and is poised to outperform over the coming year."

Only on Monday, Resmed displayed the resilient qualities Jenneke was espousing.

The healthcare stock shot up more than 2% on a day when the ASX generally was having a shocker. In fact, it is now trading at a 52-week high.

Goodman also held firm, holding its value in a sea of red on Monday. Carsales lost a little on Monday but has added more than 8% in the past month.

The post 3 ASX shares to buy before looming economic slowdown: expert appeared first on The Motley Fool Australia.

T Rowe Price Group Inc (NASDAQ: TROW) Australian equities head Randal Jenneke said Resmed CDI (ASX: RMD) stocks are now ripe for the picking.

"The valuation is now back to its most attractive level in 5 years," he told a T Rowe Price webinar last week.

"The sleep business is about to start to improve. As the US economy [improves] and there's a product cycle to come."

Resmed is a maker of medical devices that aid respiratory issues, especially in the area of sleep apnoea.

The Resmed share price had already climbed 7.18% over the week to Friday's market close. At the start of the month, it was 2% down for the year.

The business has given its shareholders a great deal of joy over the decades. The stock started at less than $1 at the turn of the millennia and has provided excellent annual returns, especially in the last dozen years.

An oldie but a goodie

Sage Capital portfolio manager Sean Fenton told The Motley Fool that Resmed's an old favourite.

"In various guises, we've owned [it] for well over a decade," he said in last week's Ask A Fund Manager.

"It had a few blips here and there from quarter to quarter but generally did very well and continued to grow and lead its segment."

Fenton agreed with Jenneke that there was more to come from the US company.

"There's still growth in its target market of sleep apnoea and improving sleep outcomes," he said.

"[The company has] invested more and more in informatics and getting closer to the customer, and they really embedded themselves into having insurance payers and employing technology and improving their product and rolling it out."

According to Jenneke, the worst economic hurdles for growth stocks would be over this year.

"We see growth in inflation peaking in 2021," he said.

"What that means is that when we get into the later part of 2021 and into 2022, we should expect the market leadership is probably going to start to change."

At the time of writing, the Resmed share price is trading at $29.87, up 5.29%.

The post This ASX darling's price is now 'most attractive in 5 years': analyst appeared first on The Motley Fool Australia.

Technology, specifically, led the way in massive market gains in 2020 after the March COVID-19 trough. The S&P ASX All Technology Index (ASX: XTX) gained a whopping 125% from 20 March to the end of the year.

But this year has been a different story, with growth and tech shares falling out of favour.

The ASX All Tech index remains flat, increasing just 0.9% since New Year's Day.

The rotation to value stocks has been triggered by a fear that inflation would rise as the world recovers from the pandemic. When inflation rises, interest rates could rise. 

And that's bad news for high-growth stocks, according to Platinum Asset Management chief executive Andrew Clifford.

"Many high-growth stocks have seen their share prices fall considerably from their recent highs, with bellwether growth stocks such as Tesla Inc (NASDAQ: TSLA) down 27% from its highs, Zoom Video Communications Inc (NASDAQ: ZM) down 45%, and Afterpay Ltd (ASX: APT) down 35%," he said in an update to investors.

"Theoretically, rising interest rates have a much greater impact on the valuation of high-growth companies than their more pedestrian counterparts. As such, it is not surprising to see these stocks most impacted by recent moves in bond yields and concerns about inflation."

Is the slowdown in growth shares temporary or chronic?

Multiple experts have predicted that the aversion to growth stocks is temporary, and the market would soon return to the 2020 darlings.

T Rowe Price Group Inc (NASDAQ: TROW)'s investment committee for its Australian arm last month already started shifting its allocation from value to growth.

Nucleus Wealth head of investments Damien Klassen also stated last month that pre-COVID deflationary forces would reassert themselves soon.

Clifford disagrees. He has grave fears for growth stocks that so many people ploughed their money into last year.

"For many (but not all) of the favourites of 2020, we would not be surprised to see them fall another 50% to 90% before the bear market in these stocks is over," he said.

"If our concerns regarding long-term interest rates come to fruition, this will be a dangerous place to be invested."

His bearish view was based on his forecast that interest rate rises would be irresistible.

"It is hard to see how we can avoid a strong cyclical rise in inflation," he told investors.

"It is an environment where there is likely to be ongoing upward pressure on long-term interest rates."

And history could serve as an example.

"We only need to look to the end of the tech bubble in 2000 to 2001 for an indication of how this may play out," Clifford said.

"The much-loved 'new world' tech stocks collapsed in a savage bear market, while the out-of-favour 'old world' stocks rallied strongly."

The post High-flying ASX tech shares could fall another 90%: fundie appeared first on The Motley Fool Australia.

For example, the S&P/ASX All Technology Index (ASX: XTX) put on 125% last year after the pandemic crash in March 2020.

And the Nasdaq Composite (NASDAQ: .IXIC) has gained a stunning 382% in the last 10 years.

But the last couple of months has seen a violent rotation from growth to value stocks, as investors fear increasing inflation and bond yields.

So is this the end of an era? Have technology shares had their day?

The golden years are done

Watermark Funds Management chief investment officer Justin Braitling reckons two big forces that buoyed tech are fading fast.

"The golden years of leadership from technology and growth seem, for the time being, behind us," he said in a memo to clients.

"Of the two major tailwinds pushing technology shares higher — the health crisis and low interest rates — one is abating (COVID) and the other is reversing (real interest rates)."

And interest rates are "likely to keep moving higher in the medium term", according to Braitling.

"The prospects of a second tech boom to complete this bull market looks less likely," he said.

"As the fundamental drivers of technology adoption are very much intact, the sector can still perform but is unlikely to lead the way it has in recent years."

It's not the end for tech shares though 

While they may no longer be market leaders, there is still plenty of upside for the technology sector, said Braitling.

"There is still tremendous momentum in each of the enablers of technology adoption: e-commerce, cloud and SaaS computing, the internet of things, and big data, to name the main ones," he said.

"This has become obvious to businesses and households awash with liquidity. They will keep investing given penetration is still early for many of these services."

The pandemic absolutely accelerated adoption of many technologies out of necessity. And while this revolution would slow down, the coronavirus has forever changed the mindset of many.

"COVID was a great awakening to the benefits of a digital economy — that message has not been lost on a single business we speak to," said Braitling.

"Those that lead in technology will invest to stay in front and the slow adopters caught wanting through the crisis will spend to catch up."

The fund manager noted, in the past 10 years, earnings per share (EPS) for tech stocks have outpaced non-tech businesses. This is despite the share prices for the tech sector climbing up.

T Rowe Price Group Inc (NASDAQ: TROW) portfolio manager Scott Berg said much the same in a webinar on Wednesday.

"Over time, if you invest with reasonable valuations, stock prices follow earnings and cash flows," he said.

"A lot of the most dynamic growth companies [today] actually have incredible economics — meaningfully different than companies back in the last tech bubble. They have very high margins, very low capital requirements, they have typically net cash balance sheets with tremendous operating leverage."

The post Will tech shares ever rise again? appeared first on The Motley Fool Australia.

The S&P ASX All Technology Index (ASX: XTX) has lost more than 14% since its 10 February high, while the Nasdaq Composite (NASDAQ: .IXIC) has dropped 7% in a month – even after a slight bounce back this week.

The big theme driving this growth anxiety is the prospect of inflation, and its potential to raise interest rates.

"There are plenty of inflationists who have been forecasting an apocalypse for a dozen years. They are about to have their day in the sun," said Nucleus Wealth head of investments Damien Klassen.

"And you can bet they will be appearing in financial media to proclaim vindication."

Pre-COVID deflationary forces are still there

Klassen, posting on a Nucleus blog, posited that all the forces that suppressed inflation for 10 years before COVID-19 have not disappeared.

Those include:

• Technological advances driving prices lower
• Globalisation leading to competitive pricing
• High levels of debt, leading to constrained spending
• Increasing inequality, leading to higher income-earners saving more instead of spending
• Culturally low expectations of inflation, leading to less aggressive requests for pay rises
• Elevated unemployment driving low wage growth

As opposed to these deflationary forces, the drivers that will trigger inflation are all temporary phenomena caused by a one-off pandemic.

They include supply chain disruptions, structural consumption changes, supply chain changes, inventory rebuild, government stimulus and a lower US dollar.

Inflation could go one of two ways

Klassen proposed that one of two scenarios could play out.

The first path was if inflationary forces beat the deflationary ones.

"Inflation gets the upper hand, bond yields rise, and value stocks perform well. Growth stocks fall, quality stocks underperform," he said.

The second option was if those pre-COVID deflationary forces reasserted themselves.

"Deflation/disinflation resumes after a short inflationary shock," Klassen said.

"Bond yields fall, bond prices rise. Defensive stocks outperform, as does quality. Value stocks and financials underperform. Growth stocks are more complicated."

Which is the more likely scenario? Klassen predicted the first scenario would occur, then transition into the second.

"Without stimulus, we will be back to the second scenario tomorrow," he said.

"With the current stimulus, I'm thinking 6 to 12 months."

Don't sell your growth shares in a panic

Klassen's forecast that deflation would eventually retake the mantle from inflation matches with what other experts have said this week.

The investment committee for T Rowe Price Group Inc (NASDAQ: TROW)'s Australian operations is already pivoting from value shares to growth.

"Central banks made it pretty clear that they want low yields to be maintained. For this reason, we are sceptical about the ability for interest rates to derail the recovery," it reported.

"Recent actions taken by the Reserve Bank of Australia to buy government bonds to bring down long-term interest rates are a strong indication that monetary policy will remain accommodative."

Chief executive of UK's DeVere Group, Nigel Green, warned investors to not overdo the rotation out of growth into value.

"The danger is the massive hype surrounding rotation from growth stocks – those expected to grow sales and earnings at a faster rate than the market average – into value stocks," he said.

"It should not be a case of either value or growth stocks.  A properly diversified portfolio needs to have both."

The post Value vs growth shares: which will win? appeared first on The Motley Fool Australia.

The investment committee for T Rowe Price Group Inc (NASDAQ: TROW)'s Australian arm this week revealed its latest allocation strategy.

Globally, share markets have been shifting to value stocks in light of higher bond yields, possible inflation, higher interest rates and post-COVID lifestyles. The S&P ASX All Technology Index (ASX: XTX) has lost nearly 14% since 10 February.

But despite this — or perhaps because of it — T Rowe Price is backing two categories of stocks:

Australia is looking good

The T Rowe Price committee acknowledged the market's anxiety about higher interest rates.

But the group maintained high rates were "likely far" away.

"Central banks made it pretty clear that they want low yields to be maintained. For this reason we are skeptical about the ability for interest rates to derail the recovery," the committee reported.

"Recent actions taken by the Reserve Bank of Australia to buy government bonds to bring down long-term interest rates are a strong indication that monetary policy will remain accommodative."

And with the economy recovering strongly as shown in this week's positive unemployment numbers, the committee is optimistic about the Australian equities market.

"[Company] earnings are following through, benefitting from high commodity prices and record low yields," stated the T Rowe Price report.

"The economic momentum is firing on all cylinders, evidenced by the economic surprise index at record high levels."

Growth shares are looking good

While the market is rotating hard to value stocks, the T Rowe Price committee thinks now is the time to turn to growth.

"We have tilted portfolio positioning towards more domestic exposures to reflect the stronger economic performance of the Australian economy and also expect growth stocks to continue to do well in a contained yield environment," it reported.

The advice backs up DeVere Group chief executive Nigel Green's warning earlier this week to avoid the "rotation trap" — that is, don't go overboard dumping quality growth stocks.

"The danger is the massive hype surrounding rotation from growth stocks – those expected to grow sales and earnings at a faster rate than the market average – into value stocks," he said.

"Does anyone suddenly seriously think Amazon.com Inc (NASDAQ: AMZN), Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) and Tesla Inc (NASDAQ: TSLA) are not companies of the future also?"

T Rowe Price Australia is taking the profit earned on value shares it rotated to last year, and ploughing the cash back into growth.

"We remain well positioned in Australia in cyclical growth, recovery growth and high-quality stocks we believe will benefit as economic conditions continue to improve," the committee stated.

"To fund these portfolio changes we have taken profit on defensive growth names and somewhat reduced exposure to offshore earners."

Similarly, the committee was optimistic on Japanese and emerging market stocks. It reported the golden growth from the US tech sector seen in 2020 would not repeat this year.

The T Rowe Price Australia investment committee consists of the following experts:

• Richard Coghlan, multi-asset portfolio manager
• Randal Jenneke, head of Australian equities
• Thomas Poullaouec, head of multi-asset solutions Asia-Pacific
• Wenting Shen, multi-asset solutions strategist
• Scott Soloman, associate portfolio manager, fixed income division

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