Managing risk is the key for equity markets in 2011, although the outlook for the full year is relatively positive, according to Platypus Asset Management and Wingate Asset Management.
Mr Don Williams, chief investment officer at Australian equities manager Platypus, said that although 2011 could be a catch up year for the Australian market, the February reporting season will be patchy and company outlook comment likely to be conservative.
“This reflects the weak domestic economic conditions in Australia since last June and the impact of the recent natural disasters, in particular the Queensland floods.
“Nonetheless, the mining boom will continue and the floods have demonstrated just how sensitive commodity prices are to unexpected set-backs.
“Overall, we are positive about the Australian market for 2011, from a bottom-up perspective, in part because the domestic economy will start to gain some momentum. The best results in 2011 could well come from domestic cyclical stocks, such as retailers and industrials, which didn’t perform well in 2010 because of the interest rate rises.
“We don’t see much interest rate action by the Reserve Bank of Australia for the foreseeable future and in the US, the Federal Reserve seems solely focussed on employment figures at the moment.
“We therefore expect the Fed to keep the stimulus package at full throttle, which could cause some volatility for the more risky assets during the year.
“We see the US market as continuing to trend higher and the Australian dollar will be less of a headache for offshore earners,” Mr Williams.
Mr Chad Padowitz, chief investment officer at international equities manager Wingate, agreed, saying that he is a little concerned about the high risk appetite and the effect in the four areas of commodities; small caps; emerging markets; and the Australian dollar.
“How China deals with its over-heating economy and its continued need for strong growth will be a key issue for 2011.
“Clearly any policy error in China will have a major negative impact in the region and on Australia. “Both China and India have inflation problems that they must deal with but any cure is likely going to negatively affect growth and risk appetite, and by extension will impact on Australia and the dollar.
“In Europe, the situation remains volatile and will continue so for some time to come. It’s difficult to imagine any kind of ‘magic bullet’ that will solve the problems there.
“While the US still has a number of serious problems to deal with, it has confounded many of its critics by displaying remarkable robustness, and it remains one of the more attractive investment destinations.
“We are also likely to see increased merger and acquisition activity in developed markets which should underpin these economies – for example, in Australia,” he said.
Mr Padowitz added that the bond rally appears to be over with sovereign credit and inflationary concerns impacting on markets.
“This in turn should be a positive for equity markets. However the fact remains that most markets are, at best, fully priced and there are no obvious bargains around,” he said.
Platypus Asset Management is a specialist, high conviction Australian equity manager formed through a joint venture in Australian Unity Investments. Platypus’ investment approach focuses on companies that exhibit a track record of earnings and preferably dividend growth.
Wingate Asset Management is a joint venture between Australian Unity Investments and the Melbourne-based Wingate Group. It is a boutique international equities fund manager with a large- company, value-based, investment philosophy.
For more information please contact:
Don Williams – 02 8270 8201
Chad Padowitz – 03 9913 0704