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Q4 2022 Global Markets Emerging Themes Outlook Part 2

Global Markets Outlook

This is the CMC Markets APAC Q4 Outlook, presented by market analysts Tina Teng, Azeem Sheriff & Leon Li. You can follow us on our socials below.

CMC Markets AUSNZ -  (Twitter)
Tina Teng -  (Twitter)
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Leon Li - LinkedIn

This outlook has been broken into 3 sections and hyperlinks are provided for reference/navigation.

Click here to read Part 1 (US Market)
Click here to read Part 3 (Chinese equities, Yuan & Commodities)

AU Market Summary

With global markets in chaos for a multitude of macroeconomic reasons including aggressive global rate hikes, ongoing European energy crisis, China’s Zero-Covid policy and elevated global inflation, the question the world wants to know is whether we’re heading into a global recession in Q4? This has caused fear and intense chaos amongst all asset classes both internationally and closer to home, where the ASX remains on a downward trajectory. Aggressive increases in bond yields have stirred the FX markets due to wide interest rate differentials which is also weighing down on the AUD/USD, notwithstanding the rampant USD strength, knocking off certain currency pairs off their perch.

Given the expected economic backdrop, the markets in Q4 may provide multiple opportunities for investors to dollar cost average on the stocks they love or a lower barrier for entry, especially for those new investors who are yet to enter the market.

ASX Summary / Sector performance

The S&P/ASX 200 ended the quarter lower by -0.74% (6,519) despite a very choppy quarter with a low of 6,409 and a high of which 7,138. Just when the ASX rallied higher during the month of July, the Fed continued its aggressive 75bp rate hikes which increased interest rate differentials between the economies, causing a global domino effect in equity markets which fed through to the ASX’s decline from mid-August to current levels.

The continued talks of recession have clearly impacted the ASX and continues to do so. In saying that, a recession has not yet been fully priced in, so there may be further room for the index to fall should a recession become fully priced. This will be key to watch as we head into Q4 2022.
(Source: TradingView) – as of 30th September 2022
(Source: Bloomberg) – as of 30th September 2022

Financials Summary (macro, what to expect this quarter, stocks to watch)

The financials sector being the most weighted sector on the ASX, primarily drove the ASX which followed a similar price action. The sector rallied amid a major sell-off in June when aggressive interest hikes & recession were a red hot topic. The index reached a low of 5,770 and a high of 6,423 this quarter, currently at 5,805. We anticipate the financials sector will continue its downward trajectory as more indicators signal a global recession, especially with accelerating macroeconomic issues in US/UK/Europe.

The key themes to watch in Q4 that will drive this sector are bad debts, net interest margins, demand for credit & serviceability. During a high-interest rate environment, consumers/businesses tend to re-adjust their expenditure from reduced discretionary spending. This means those who are over-leveraged, may face issues in serviceability, leading to an increase in bad debts. Net interest margins increase as rates rise, as banks pass full rate rises to their lending products but limited the rises in their deposit products.

During a recession, consumers/businesses will be severely restricted in their appetite for credit, as serviceability becomes a headwind from the higher rate environment which therefore significantly reduces demand for credit due to reduced discretionary spending. This leaves banks with a catch-22, where there is lower demand for credit, but higher net interest margins, so both offset each other, which creates a very confusing environment for leadership to navigate through and provide forward guidance.

Stocks to watch:

  • ANZ - Australia and New Zealand Banking Group Ltd
  • NAB – National Australia Bank
  • WBC – Westpac Banking Corporation

(Source: TradingView) as of 30 September 2022

Materials/Resources (macro, what to expect this quarter, stocks to watch)

The materials sector being the 2nd most weighted sector on the ASX, similarly to the financials followed a fairly similar trend with Q3 lows at 14,312 and highs of 16,900, now sitting at 15,210. The materials sector is heavily reliant on China as Australia is a major exporter of petroleum gas, coal, iron ore & copper. But China’s current dire economic situation leaves the rest of the world with immense uncertainty which could possibly taint Australia’s imports/exports and therefore materials stocks over the course of Q4.

The key themes to watch in Q4 will be focused on China’s Zero Covid policy, its infrastructure/property crisis and supportive measures implemented by the government, iron ore exports & China’s reduced GDP forecasts and its implications on Australia.

On a very high level, the 0 Covid policy is still severely dampening demand for commodities in certain major regions in China. The policy is too stringent and contributes to most of China’s uncertainty. The Chinese government stated they will support the damaged real estate sector via funding contributions to continue developers’ projects, but this is still yet to occur. Once this picks up, we can expect iron ore imports to strengthen, increasing iron ore prices in Australia as demand increases, therefore iron ore miners stocks may rally. At this stage, iron ore exports from Australia have been reducing week on week. In addition, various global banks have begun downward revising China’s GDP forecasts from low 3% to high 2%, to indicate further contraction in the economy, largely due to lower net exports.

Stocks to watch:

  • FMG - Fortescue Metals Group
  • OZL - Oz Minerals
  • PLS - Pilbara Minerals

(Source: TradingView) – as of 30 September 2022

Energy (macro, what to expect this quarter, stocks to watch)

The energy sector was super-hot during Q3, as we saw energy stocks such as Whitehaven Coal, Woodside Energy & Paladin Energy and many others make decent gains, primarily from the macroeconomic backdrop of the ongoing Russia/Ukraine war and the heightened/extreme energy crisis now hanging over Europe. During Q3, the energy sector made lows of 9,570 and highs of 11,500, now currently sitting around the 10,250 level. We anticipate energy stocks to continue their upward trajectory as demand for natural resources will remain elevated as long as the war persists and Europe’s energy situation deteriorates.

The key themes to watch in Q4 will continue to remain around Russia/Ukraine, with more focus on Europe’s extreme energy crisis as a result of the war. Europe is experiencing significant difficulties with obtaining appropriate volumes of natural gas to power residents through the European winter. Russia, being a major global exporter of natural gas, has shut down its Nord Stream pipeline (which supplies 170 cubic metres of natural gas to Europe) with more recent news of a leak in other Nord Stream pipelines as a result of a ‘sabotage’. Natural gas prices remain elevated and to add salt to the wounds, electricity prices have been extremely volatile with energy bills skyrocketing, adding to inflationary pressures on households, consumers & businesses.

Australia being a large exporter of coal and natural gas (although not sufficient enough to solve Europe’s energy crisis), may be able to support Europe as China has stopped importing coal from Australia due to a coal ban implemented by the Chinese government, therefore, supplies can be diverted to assist Europe and alleviate some pressure as demand for these resources will be extremely high.

Stocks to watch:

  • WHC - Whitehaven Coal
  • WDS - Woodside Energy
  • PDN - Paladin Energy

(Source: TradingView) – as of 3 October 2022


Electricity and natural gas are expected to drive global inflation higher on the back of higher demand as Russia continues to squeeze the west of its natural resources.

We may start to see increased exposure to energy stocks from various investors/traders/hedge funds as they view the ongoing energy crisis as a potential area for growth. All investor groups are >50% likely to increase their exposure to energy stocks over the next 6 months which provides opportunities for investors to explore this sector.

AUD/USD Summary

The primary story driving this currency pair is interest rate differentials between AU & US. Although AUS have been hiking by 50bps, the US have been even more aggressive, hiking by 75bps, relative to their headline CPI number of 8.3% vs 6.1% in Australia. Although not as damaging as other currency pairs, the AUD/USD remains relatively stronger than the likes of GBP, EUR & CNH which are experiencing significant weakness (and record lows) from a dominant USD. We expect the USD to continue its rampant journey as it continues to make 20yr highs which may see the AUD reach levels of 62c. However, on a positive note, we don’t expect the AUD to reach COVID lows of 55c, as the AUD/USD is a commodity currency, so elevated commodity prices may keep it relatively supported.

(Source: TradingView) – as of 3 October 2022


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