“When you look at stocks in Australia...investors have gravitated towards a relatively small group of high-quality, lower volatility defensive stocks, which have been great investments and have done very well,” Stuart Rae, AllianceBernstein’s chief investment officer of the Pacific Basin Value Equities division said.
However, the investment management company believes this has lead investors to ignore other opportunities in the market.
“[It] is very narrow and they [investors] have avoided, typically, a lot more cyclical domestic exposures, whether that is housing stocks, building materials, media or retail,” Mr Rae pointed out.
The asset management firm believes “the gap is very big” now between valuations of these two types of stocks.
“[Investors] are buying safety in Australia first, through retail and healthcare and some of these classical defensive stocks, and really selling down a lot of the domestic cyclical exposure,” Mr Rae said.
AllianceBernstein also thinks investors are “not giving enough credit” to a recovery in the domestic economy.
In particular, the firm sees signs of the Reserve Bank of Australia’s (RBA's) rate cuts as feeding through and being “very supportive to the domestic market” and cyclically-exposed businesses.
The asset management firm sees this as creating opportunities in the market, something which suits their investment style.
“We are drawn to the potential recovery in consumer spending and consumer sentiment and we are drawn away from these expensive defensive areas which have outperformed a lot,” Mr Rae said. “As a contrarian [investor], I am happy being overweight in those areas in Australia.”
AllianceBernstein also sees opportunities in the mining sector, believing that the demand for commodities in China is not going to collapse. However, the investment house does caution investors in this area, saying stocks must be judged on a “case by case” basis.
