Australia Value Equity 2018 Outlook
After the strong run for Australian equities and for the Martin Currie Australia Value Equity portfolio in 2017, Reece Birtles and Michael Slack look to the year ahead and explain how the Australia Value Equity strategy is well positioned to capture opportunities in 2018.
31 January 2018
Our market outlook at start of 2017 for strong growth and increasing bond yields went against consensus. We believed that the Chinese economy would not slow, and would in fact benefit from Government stimulus. We held the view of rising oil and base metal prices, and also expected Australian GDP growth to accelerate.
Based on this, and our bottom-up stock analysis, the Value Equity portfolio was positioned in more cyclical names such as resources, non-bank financials and consumer stocks. These stocks were well rewarded as our view has become more consensus going into 2018.
Given the backdrop of steadily improving global growth, the outlook for the Australian economy is looking more positive for the short to medium term. However, it should be noted that the Australian economic cycle runs behind that of the US recovery, so a lag in the effects of growth are to be expected.
Given the lagged start in the rebound relative to the US, Australian equities are thus at an earlier stage of EPS acceleration and carry less valuation risk than global or US equities. Whilst equities are no longer cheap on long run measures, valuation is not yet a barrier to equity returns in the ‘double digit EPS growth world’