Soft Numbers Out of Australia Split Investor Sentiment

Australia shed over 29,000 jobs in December, well short of the gain of 10,000 expected by economists. Thursday's soft figures followed January's consumer confidence data, a day earlier, that also came in below expectations, leading analysts to debate whether there's more bad news ahead.

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"They are soft figures, despite the fall in the unemployment rate, it's the job losses that the market is focusing on," Gerard Lyons, Chief Economist & Group Head of Global Research at Standard Chartered Bank told CNBC. "Despite the easing at the end of last year, it doesn't seem to have fed through into consumer sentiment and maybe these jobs numbers explain why."

The Reserve Bank of Australia cut interest rates by half a percentage point to 4.25 percent, in two back-to-back moves, at the end of 2011. But that's done little to boost consumer confidence, according to Lyons, who says people are more worried about the labor market and China's slowdown.

"The markets tend to see Australia, not only as a longer-term commodities story, but often as a play on China," he said.

"The data in China has held, but if we start to see both softer Chinese data coming in a few months and softer Australian data, then this might...add to the pressure for the central bank to ease rates."

Earlier this week, asset management firm M&G Investments pointed out that hot money, which had flowed into Australia, could just as easily flow out if China's growth slows. According to the firm, foreign ownership of Australian government bonds soared to a record 80.4 percent in the third quarter of 2011 and is likely to jump even further in the fourth quarter.

"If China has a hard landing then Australia is in serious trouble, and even if it has a soft landing then Australia may be in trouble anyway," M&G's Anthony Doyle said.

On the other end, Angus Geddes, CEO of Fat Prophets, remains bullish on Australian equities and thinks the Australian Stock Exchange

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"I think we're going to get some positive surprises in the months ahead that will actually act as a catalyst — coming from internationally," Geddes said.

"China's obviously been a hindrance to our market and concerns around whether it's going to have a soft landing or hard landing and also Europe with the ongoing crisis there. But I think that the world will get through it," Geddes said.

He argues that concerns over another global financial crisis may be overblown and history shows that whenever investors are anticipating another stock market crash, it seldom happens on queue.

An HSBC report released on Thursday also backs a bullish stance on Australia, forecasting a 21st year of consecutive growth for the economy in 2012 on the back of the country's mining boom, its focus on Asia and the fact that policymakers are well-equipped to deal with potential problems like China.

"Investment in the resources sector is expected to contribute around two-thirds of the growth in the economy in 2012," the report says. "Most importantly for Australia, we expect that China will still manage a 'soft landing', as Chinese authorities have already started to loosen the monetary taps and started to ease fiscal policy."