Australia Strategy: Catalyst Inquirer

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
28 April 2016, 11:21 AM
Sectors Covered:
Equity Strategy and Quant

Market volatility is normal

Equity markets remain at the mercy of abnormal macro-economic conditions. Making bold portfolio decisions amid such uncertain conditions is a difficult, and potentially hazardous, exercise, and hence our cautious Asset Allocation settings.

We think choppy markets will persist through 2016 but we’re comforted by the fact that the volatility is normal and simply reflects the price investors pay for the long-term outperformance of shares.

Positioning ahead of stock-specific catalysts

Despite the difficult backdrop, the market is still rewarding investors positioned in companies exposed to compelling themes (refer to: Key market themes for 2016. N.B. Client access only).

We look ahead to several catalysts in May-June which we think will generate share price strength among many of our favoured exposures including Telstra, Challenger, Next DC and IPH. Access further details on these stocks in my full report (client access only).

Telstra is an interesting large cap addition to our list this month ahead of further potential capital management. Equally, in this unforgiving market, we nominate some key events to avoid to minimise the risk of short-term capital loss in names including Orica and Incitec Pivot.

Other market events to watch

  1. The banks' reporting season kicks off in early May with Westpac (May 2), followed by ANZ (May 3), NAB (May 5), and Macquarie (May 6). We expect intense scrutiny on bad debts, margins and dividend guidance.
  2. Chief Economist Michael Knox expects one to two more cuts in domestic interest rates, with one cut potentially before June, which is likely to rebuild equity support for high yield plays
  3. The federal budget will be handed down early on May 3. Company and/or personal income tax cuts are potentially on the table although we doubt the market will price these in given the fickle state of affairs in Canberra. Budgets are traditionally a risky time for healthcare stocks and despite the sector having already been smacked in 2016, we will conservatively await the outcome of the budget and the MBS review.
  4. Finally, we address the risks around the UK’s 'Brexit' referendum in our recent note Budgets & Brexits published April 19 (client access only).

More information

View the full list of potentially positive and negative upcoming stock catalysts by viewing the full Catalyst Inquirer report. If you would like more information, please contact your Morgans adviser or nearest Morgans office

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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