As the Reserve Bank of Australia holds the cash rate at 1.5%, economic conversations are moving from a rise to a cut.
AMP Capital chief economist Shane Oliver earlier this month said the RBA could cut to 1% by the end of 2019, with the first rate cut coming earlier than the second half, which he previously expected.
Oliver's new forecast comes as house prices in Sydney and Melbourne accelerated their descent late last year, bringing with them ongoing credit tightening and investor uncertainty over potential changes to negative gearing and capital gains tax.
He is joined by Industry Super Australia's chief economist Stephen Anthony, who is forecasting a cut of 25 basis points by the fourth quarter on the back of four factors: China's slowdown, Australia's falling house prices and consumer sentiment, and the US Federal Reserve's reaction amid global trade concerns.
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Both think being short the Aussie dollar is a good hedge.
Up, down or sideways, if the rate moves, how can advisers and investors structure their portfolios to protect their returns?
This will be a key point of discussion when top economists and industry professionals meet at the Financial Standard Chief Economists Forum next month in Sydney and Melbourne.
DWS Asia Pacific chief investment officer and global head of emerging markets, Sean Taylor, thinks differently from AMP Capital and ISA. He expects the RBA's next move will be a hike, coming later in the year.
"While the labour market continues to be strong, the housing market remains weak. Recent oil price recovery and upcoming elections in May are seen as a positive, the latter resulting in a fiscal push," Taylor says.
He says there is no longer a strong case for the Australian dollar to weaken against the US dollar and it would break 70 cents in the near term, ending 2019 at 65 cents. Meanwhile, disappointing CPI and Producer Price Index (PPI) numbers should be supportive of Australian bonds in the short to medium term.
For Australian equities, DWS is currently neutral within global equities but expects slower EPS growth.
One Australian equities manager who differs from Taylor on rate cuts is Lazard Asset Management portfolio manager Aaron Binsted, who is gearing for a rate cut.
"We have come down from a peak of 12% allocation to bank stocks to none in the last quarter [in the $10 million Defensive Australian Equities Fund] because we are concerned that if the housing downturn continues, these stocks may lead to capital loss and slimmer dividends," he says.
Meanwhile, high-profile advice firm Pitcher Partners and Janus Henderson Investors are betting on the RBA holding its position.
Frank Uhlenbruch, an investment strategist on Janus Henderson's Australian fixed income team, thinks the RBA is likely to hold rates at neutral until it sees signs of a sustainable lift in wages.
"There is no doubt that there was a slowing in global and domestic growth over the latter part of 2018, but it appears the market's adjustment to this was exaggerated by political dramas and a decline in market depth over the Christmas and New Year period," Uhlenbruch says.
"Our view is that the RBA will respond to recent developments by signalling confidence in the domestic outlook and the stabilising role that it can play by leaving the cash rate unchanged at accommodative levels until it sees signs of wages lifting."
At Pitcher Partners, Adam Stanley is trying to strike a balance between the market starting to talk about a rate cut and RBA maintain the next movement will be "up rather than down."
"Against this rate backdrop, we are modestly underweight local duration as we continue to expect greater levels of volatility across the yield curve as investors adjust expectations around global growth," Stanley says.
Pitcher Partners is recommending the use of unconstrained fund managers that have proven records of delivering value through sector rotation and duration management.
In the superannuation land, even though ISA is forecasting a rate cut, immediate action doesn't seem to be necessary.
"There is very little super fund chief investment officers need to do at this stage other than a broad awareness that a more challenging earnings environment is coming," ISA's Stephen Anthony says.
This news story was first published in the latest print issue of Financial Standard. You can view the entire edition on our free iPad app.