Covid-19 Roadmap: Sector outlooks and strategies
About the author:
- Author name:
- By Tom Sartor
- Job title:
- Senior Analyst
- Date posted:
- 29 June 2020, 10:30 AM
- Sectors Covered:
- Resources, Metals
- Morgans research analysts re-set their sector views, strategies and preferred picks in light of ongoing COVID-19 risks to the economy.
- After some stunning rebounds, we see better opportunities among the major banks, telcos and select industrials, and among sub-segments of the REITs.
- Updated analyst key picks, including Westpac, TPG Telecom, Amcor and ALS Limited are profiled in more detail in our dedicated Morgans Best Ideas publication.
- No crisis lasts forever; nor will this one. We remind investors to discard the noise, assess the calm facts and adjust their strategies to prepare for opportunities as the health crisis morphs into an economic one in the coming quarters.
Potholes emerge in front of the market's surprise rally
Equity valuations surged well ahead of traditional value fundamentals in the March quarter, pushed by a global flood of liquidity. Momentum is also perpetuated by the rise of ETFs where value judgments don't apply, and a sense of fear of missing out given perceptions that central banks have a "whatever it takes, no matter the cost" attitude to supporting asset values.
Given the ultra-low outlook for interest rates, it's easy to argue the market is pricing equities increasingly on a relative basis, rather than on an absolute view of return versus risk, which can be a dangerous dynamic should it revert.
Remember no investor alive has witnessed this type of rates outlook nor this scale of stimulus first hand. So we're cautious around potential potholes in the coming months including:
- FY20 results/FY21 outlooks worse than share prices imply;
- re-escalation of the CV19 outbreak;
- un-coordinated removal of stimulus;
- risks to global trade/relations; and
- US election uncertainty.
Our research piece, Pre-reporting season catalysts, flags upcoming stock catalysts ahead of the August reporting season.
March quarter moves and opportunities
The Major Banks have been the clear large-cap laggards during the market's strong rebound from the March "COVID" crunch. Azib Khan's sector note, Banks -Damage priced in is overdone, is worth a read, with Westpac the clear favourite and CBA looking too expensive.
Retailers were among the hardest hit into the March lows, but the sector has seen the third strongest rebound since with many surprisingly strong trading updates supported strongly by the market.
Along with the Banks, we see some of the better opportunities among Telcos, essential Industrials businesses, and also among sub-segments of the REITs sector which got caught in March over-selling.
Sectors like Online and Travel look most vulnerable to a re-escalation of concerns around CV19, given their stunning rebounds off their lows.
More COVID-19 insights
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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.