Reece Birtles, chief investment officer, Martin Currie Australia
In your opinion, what does the Australian share market look like in 2022?
Earning expectations are high for 2022.The price being paid for growth versus value stocks is at all-time high, but we expect value spreads to narrow as economy strengthens. In short, we note a positive outlook for the Australian share market. But one needs to remember that while price of shares have moved to record high, earnings have moved at different paces.
In essence, our outlook is that low interest rates will prevail, there will be a strong infrastructure pipeline and strong savings ratio from households which will be spent after COVID lockdowns end. This combined with strong employment will boost local market. Plus, let's not forget next year is the federal election so we expect further injection of stimulus in the economy.
What sectors and companies will do well in the next 12 months and why?
Select companies will benefit from COVID reopening. These will include banks, travel stocks and shopping centres across regional Australia. Infrastructure will play an important part as work from home and regional Australia will be a strong theme.
In the tech space, battle for household wallet will intensify as consumer companies will look to cross sell their services and with that, business transformation will be important.
One of [the] biggest divergence is in energy space. There is an energy transition going on and demand for gas will remain strong.
What are the main volatility risks on the horizon?
We are underweight [in] iron ore and China exposed stocks. The iron ore price has fallen and demand from China is under crackdown. If China slows down, then that will be a concern.
And of course, the growth part of the market is still expensive
What are the big opportunities for companies in the next 12 months?
We will continue to look for opportunities across defensive stocks.
Sustainability and ESG will play a pivotal role across all sectors. ESG inflation will impact chemical, fertiliser and heavy industries. Companies will work towards reducing carbon footprint.
As we mentioned, [the] tech sector will be a winner post lockdowns.
Jamie Nicol, chief investment officer, DNR Capital
In your opinion, what does the Australian share market look like in 2022?
Despite headwinds to the Australian index driven by falling iron price, our market continues to show remarkable resilience given most of the population [is] currently in some form of lockdown.
This is a theme consistent with other economies impacted by the Delta variant as markets justifiably look through to calendar year 22 and beyond.
Galvanised by the success being witnessed in the UK, the domestic market is responding positively to a growing willingness to abandon restrictions and live with [the] virus once vaccination thresholds are reached. Given the undertakings to end lockdowns given by NSW and Victorian premiers, the key focus is on vaccination progress.
The outlook for global markets will be tightly coupled to federal reserve commentary on the tapering of its quantitative easing program and the evolving inflation environment.
What sectors and companies will do well in the next 12 months and why?
Pent-up demand and excess savings have the potential to drive a very strong Christmas period for domestic consumption, and support cyclical earnings into the new year.
What are the main volatility risks on the horizon?
The biggest risks we assess in the near-term centre [is] around a deteriorating Chinese economy. New coronavirus outbreaks, catastrophic flooding and regulatory interventions have yielded slower industrial production and retail spending growth, with the potential to impact the broader region.
Rudi Minbatiwala, head of equity income, First Sentier Investors
In your opinion, what does the Australian share market look like in 2022?
In 2021 companies reported large earnings growth numbers, however we must remember that this growth was off a low base due to the COVID disruption. Moving into 2022, we expect the focus will be on the sustainability of this earnings growth. The current market valuations suggest that the market expects buoyant earnings growth rates to continue. Hence any shifts in this view will play a huge role in determining the Australian share market return outcome for 2022.
What are the main volatility risks on the horizon?
The trigger for volatility will be how the inflation story plays out around the world, the flow-on impact to interest rate expectations and ultimately, equity market valuations. We believe this risk is heightened given the elevated valuation levels the equity market is currently experiencing. Interestingly, this volatility risk may be experienced both in the market as a whole, but also extend into higher volatility between differing investment styles or sectors in the market.
What sectors and companies will do well in the next 12 months and why?
A particular area of interest for us is the building materials sector, with positive expectations for continued improvement in detached housing activity and home renovation activity. The sector stands to benefit from the continuation of the strong housing cycle supported by record savings, fiscal stimulus tailwinds and a record low interest rate environment. The Australian market provides opportunity to obtain exposure to this thematic both in Australia, as well as in the US. James Hardie remains an attractive exposure as it continues to drive growth through its expansion into adjacent products and geographies in the US. Meanwhile CSR is a top pick for an exposure to domestic activity where we believe challenges stemming from lockdowns and supply chain issues merely extend the housing cycle. This may prolong elevated earnings as demand is pushed back and building timelines are extended.
What are the biggest opportunities for companies in the next 12 months?
As economic conditions remain solid, we believe this should provide a supportive backdrop for companies willing to invest capital. The best opportunities will be from companies that can demonstrate an ability to invest in their business in projects that generate high returns on capital while navigating the headwinds related to emerging signs of rising labour and input cost.
Neil Griffiths
Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.
Neil is also the host of the ifa show podcast.
