Rudi’s View: Stocks To Own & Best To Avoid

Rudi's View | 5:21 PM

Strategy updates, model Portfolios and curated lists of Best Buys and stocks to avoid by asset managers and equity strategists.

In today's edition:

• Australia Is Suffering
• Australia On Underweight
• Anticipating Lower Bond Yields
• Against The Tide: Data Centres
• Gold, Energy & Retail
• Morgans' Best Ideas
• UBS's Top Picks
• Bell Potter's Model Portfolio
• Morgan Stanley's Model Portfolio
• Morgan Stanley's Conviction Buys

By Rudi Filapek-Vandyck, Editor

Australia Is Suffering

Accounting and advisory firm Pitcher Partners sent us its outlook for economies and financial markets this week.

We believe this is the first time, which is probably as good a reason as any to place the firm's views and conclusions at the centre of Rudi's Views this week.

No reason to get excited, though. Here's the main conclusion about the Australian share market:

"Australia stands out as one of the more expensive markets globally, a premium that appears difficult to justify given its relatively subdued growth outlook and sector composition."

Indeed. Ouch.

The outlook for the domestic economy is seen as presenting investors with more risks than opportunities, even though GDP growth is projected to remain positive.

Inflation remains a significant concern, and the RBA is likely to tighten further into a slowing environment.

The AI-led capital spending boom should prove relatively insensitive to higher interest rates and challenging economic conditions, while ongoing weakness in housing remains a potential source of negative surprises.

For portfolios with a global composition, the recommendation is to maintain an Underweight allocation to the local share market as a prudent course of action.

With most sectors continuing to trade above long-term mean valuations --with one notable exception: REITs-- investment returns are likely to remain more constrained than in recent years.

Pitcher Partners recommends Underweight positions in the expensive-looking banks and retail, an Overweight allocation to resources, and a Neutral weighting in REITs.

Regarding the latter sector, led by Goodman Group ((GMG)), Pitcher Partners reasons: "while we are seeing valuation support and resilient underlying performance, we cannot ignore the economic reality and retain neutral positioning as a result".

Elsewhere, doubts and concerns regarding the AI supercycle are considered "transient", with little prospect of a meaningful industry-wide retrenchment in AI spending on the horizon.

Pitcher Partners also believes "concerns surrounding AI capital expenditure are overstating the risks relative to the scale of the opportunity".

And while equity markets in the US and elsewhere are not exactly "cheap", the overriding view is that underlying growth trends remain robust, meaning the outlook for equities should remain positive as well.

Except, maybe, in Australia, for the time being.