31 January 2018
The global economy is experiencing synchronised growth creating good opportunities for investors locally and internationally, according to Bennelong Funds Management’s investment partners.
Julian Beaumont, investment director at BAEP, says the upcoming ASX reporting season will be closely watched by the market, but the expectation is that it will be generally positive.
“Despite a strong last quarter, the ASX is yet to regain its highs from late 2007, and only in November regained highs from early 2015.
“While overall the market should provide decent returns, stock selection will remain an important element.
“The biggest risk for markets is a material jump in interest rates, but with Australian 10-year government bonds yields at around 2.8 per cent – the same as the start of 2016 and 2017 – this seems to be some time off.
“As was the case in 2017, the best opportunities will be outside the top 20 stocks. In 2017, the top 20 stocks returned 7.3 per cent, while the ex-20 stocks returned 18.7 per cent.
“Increasingly, risks are appearing in the so called ‘safe’ stocks, such as the banks, Telstra, Wesfarmers and other bond proxies.
“There are promising opportunities in a number of successful Australian exporters and global businesses, but a question mark hangs over whether the Australian dollar will strengthen.
“Globally, however, the economic outlook is strong and conditions are conducive to solid returns for international equities,” Julian says.
According to Justin Blaess, portfolio manager at Quay Global Investors, the global outlook for property markets in 2018 is also generally positive.
“Global capital is still actively seeking real estate returns and the global macro environment is conducive to this.
“In the US, supply fears are abating and are constrained by tight labour markets and higher funding costs.
“In Europe, markets are earlier in the cycle and so still have a way to run, while in Hong Kong and Singapore the rental cycle is recovering.
“Generally, global REITs are trading a discount to private market net asset values (NAV), with some market commentators estimating this is by as much as 10 per cent.
“The expected 12-month total return forecast for 2018 is for low double digits, consisting of earnings per shares (EPS) yield of 5-6 per cent and growth of 5-6 per cent.
“Locally, despite prophecy of a looming retail apocalypse, retailers in Australia are still employing and there has been no uptick in retail insolvencies.”
Justin echoes Julian’s view that the Australian dollar is a wildcard in the mix, and says global real estate returns for Australian investors were negatively impacted by a strong dollar in 2017.
Meanwhile, it is onwards and upwards in global infrastructure for 2018, says Greg Goodsell, global equity strategist with 4D Infrastructure.
“Globally, there is a huge infrastructure spend that needs to be financed and traditional government fiscal resources are, quite simply, inadequate.
“Private sector financing will be an essential element of future projects if global infrastructure investment needs are to be met.
“According to the World Bank there is a significant spending gap across both developed and emerging market countries. It estimates that global infrastructure investment needed by 2040 will total $US94 trillion.
Globally, the increased infrastructure spend required is partially due to the rise of the middle class at an unprecedented rate.
“At a global level we are witnessing the most rapid expansion of the middle class the world has ever seen – particularly in Asia.
“At the end of 2016 there were 3.2 billion people in the global middle class. That will increase by 160 million each year for the next five years. In all, 88 per cent of the next billion entrants into the middle class will reside in Asia.
“Globally, the middle class is already spending $US35 trillion and could spend $US29 trillion more by 2030, accounting for roughly one-third of the global economy.
“This rapid pace of growth will also need a commensurate increase in infrastructure development to keep up with its growth – and private sector financing will be essential to meet the global investment need,” says Greg.