Resources are a potential highlight for 2020, according to Ausbil Investment Management, with stronger Earnings Per Share (EPS) growth than for financials, REITs and industrials as they benefit from global stimulus, ongoing Chinese demand and a preferentially lower Australian dollar.
In outlining his thoughts on the year ahead for investors, Ausbils executive chairman, chief investment officer and head of equities Paul Xirades said he expected to see modest EPS growth for the equity market but higher EPS growth in resources.
He said: “In the last resources boom, which peaked in 2011, mining companies invested large amounts of capex in capacity.
“Now, these companies have excess capacity and lower capex expense which is translating into higher free cash flows and stronger earnings growth across the sector as the worlds demand for resources continues.”
The team at Ausbil, an Australian-based investment manager, sees the following key points for investors in 2020:
- Rates: Lower for longer will continue;
- Stimulus to come in low rates and more fiscal injection;
- World and Australia to deliver GDP growth back at trend, subject to no deterioration in trade and markets;
- Modest EPS growth for equity market, higher EPS growth in resources; and
- Alpha opportunities across markets in quality names with a strong EPS growth outlook.
Interest rate stimulus
Xirades said: “We see interest rates, which have been the primary source of stimulus together with QE, to remain lower for longer, which is the key message we are reading in the pronouncements of global central banks.
“We expect governments to add more fiscal stimulus to the macro equation, here and overseas, just as Christine Lagarde, President of the ECB, called for recently. This could also include increased infrastructure spending.
“An Australian dollar trading in the range of 67 to 72 cents is likely to ensure commodities and other Australian exports remain attractive and support the local economy.”
Growth in GDP
In relation to GDP growth, Xirades said: “With this background of stimulus as context, we see the world, the US and Australian economies continuing on the growth path, delivering growth at trend in 2020.
“The undeniable importance of China in this equation, and their ability to maintain growth is what will help support Australia and world growth, as we see China maintaining GDP growth of over 6% in 2020.
“Of course, this is predicated on China and the US reaching workable agreements on trade, but we think resolution will come faster the more the standoff hurts for both economies, especially given their recent phase-one agreement.”
Ausbils bottom-up view for company earnings in 2020 is for some moderate EPS growth and Xirades said it would remain a stock-pickers year with the focus on high-quality companies that benefit from economic growth and a steady but lower Australian dollar.
On the financial sector Xirades said: “In 2020, we expect the implications from the Royal Commission to continue to roll through, with a relatively low growth in EPS for banks and other financials.
“Mitigating this drag on earnings is the fact that the housing market bottomed in May 201Read More – Source