Cameron Blanks from Pacific Equity Partners speaks to James Dunn at The Inside Network’s Alternatives Symposium in Melbourne on looking through the cycles and catalysing growth. The Inside Adviser
Duncan Farley from RBC Bluebay Asset Management speaks to Giselle Roux at The Inside Network’s Alternatives Symposium in Melbourne on macro trends that matter more. The Inside Adviser
‘Optimism and opportunity’ for Aussie equities in 2022
“Optimism and opportunity” are the best way to describe the outlook for the Australian equity market in 2022 according to Reece Birtles, of Martin Currie. In his role as chief investment oficer, reading the broader themes is as important as assessing the underlying portfolio companies.
As the headlines in the financial press remain fixated on the risk of interest rate “normalisation” and what is ultimately a predictable bout of inflation, Birtles is seeing opportunities where others don’t, but particularly for the firm’s unique “valuation-driven” style of investing.
As the calendar turns over and workers return to their offices, albeit a little slower than expected due to the Omicron variant, he expects the “wide value spreads” to narrow and for Value to once again outperform Growth. The key driver, he suggests, is the under-appreciated positive impact of an economic reopening in the wake of last year’s lockdowns.
Long popular with retirees for its income-focused strategies, Martin Currie highlights what it views as the most important issue, and biggest risk, for income investors: the risk of investing in low-risk assets that earn “near-zero income,” particularly given growing inflation concerns.
According to its in-house analytical team, the so-called “yield gap.” or income differential, between high-quality income investments and other income asset-class options, like credit, is “extremely wide,” and likely to drive additional capital flows.
“Carbon transformers” look set to deliver a new set of opportunities in 2022, with those central to renewable energy generation, infrastructure and energy consumption well-positioned for a greener future. Similarly, traditional infrastructure spending will benefit the incumbents, with residential communities also set to grow amid continued strong house prices.
Martin Currie’s global team shares a similarly positive view, with Zehrid Osmani, head of the global long-term unconstrained team and manager of the Martin Currie Global Portfolio Trust, predicting a “more prolonged positive economic cycle.” With that in mind, however, he suggests that due to the higher starting point in 2022, lower returns should be expected.
The major risk remains “margin pressure from higher frictional inflation,” regardless of whether it proves “transitory” or not. This risk increases the importance of fundamental analysis and ultimately, being able to identify those companies with “superior pricing power and lower downside margin risk.” That is, companies that are able to grow both sales and profit, even in testing conditions.
