Australia Strategy: Sector outlooks and preferred picks

About the author:

Tom Sartor
Author name:
By Tom Sartor
Job title:
Senior Analyst
Date posted:
24 June 2019, 10:53 AM
Sectors Covered:
Junior (Emerging) Resources, Bulk Materials

Investing in abnormal markets 

Australian banks and high yielders enjoyed a relief rally post the surprise Australian Federal election result, but Australian long bond rates plummeting to record lows (below 1.3%) has been the major driver of Australian equities to near record highs. This is a pure yield arbitrage story. With Australian equity yields (ex-Resources) at decade lows (4.3%), their premium over long bond rates (roughly 3%) is currently at decade highs, supporting the share push to extreme valuations (currently >17.5x 12-month forward). 

What worries us is the ongoing erosion in profit growth expectations. This was a difficult 'Confession season' this year with several larger stocks downgrading earnings guidance. That said, with the removal of Federal Election uncertainty, and with forecast FY19 earnings growth now at zero, the market has set itself a very low hurdle to clear heading toward August results. 

Highlighting four standout opportunities over a 12 month period

Our Sector Analysts have provided an update on key dynamics, the outlook and have nominated their preferred picks per ASX sector. Morgans clients can login to view the detailed research note.

We highlight four standout opportunities below, including our forecast 12-month return:

  • Westpac Banking Corporation (WBC) – 27% forecast 12-month return
  • Orora Limited (ORA) – 13%
  • Treasury Wine Estates Limited (TWE) – 26%
  • Oil Search Limited (OSH) – 48%

More information

Morgans clients can login to view our detailed research note which includes sector analysis and our preferred picks by sector. Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

The most pertinent sector views will be featured in our upcoming Investment Watch – Winter 2019 outlook publication.

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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