Market Strategists Prefer Risk (But RBS Warns)

This story features STOCKLAND, and other companies. For more info SHARE ANALYSIS: SGP

By Rudi Filapek-Vandyck

Market strategists at Macquarie removed Stockland ((SGP)) from their high conviction list on Friday. The shares have noticeably underperformed the Australian share market and that's exactly how the strategists liked to see it since Stockland was on their list as a conviction underperformer.

The rating set by the fundamental sector analysts has remained unchanged (Underperform) but the conviction has worn off a bit, so Stockland is now no longer part of the stockbroker's so-called Marquee List. The Australian Stock Exchange ((ASX)), however, has remained on the list and if Macquarie's call proves as accuarate as the one for Stockland, ASX shares should not fully participate in the broader share market rally that is taking place on expectations of imminent Fed money printing.

Note: the strategists point out Stockland shares are still trading above what Macquarie property analysts have put forward as a twelve month price target.

Four companies have remained on the list with a positive view: retailer JB Hi-Fi ((JBH)), iron ore junior Mount Gibson ((MGX)), media mogul News Corp ((NWS)) and diversified resources giant Rio Tinto ((RIO)).

Interestingly, on Monday those same market strategists updated their thoughts on the outlook for the Australian share market which led to the same conclusion suggested in earlier updates: the highest growth is to be found amongst resources companies and amongst companies who provide services to resources companies.

Macquarie's so-called Model Portfolio thus has a heavy weighting towards resources, resources leveraged companies and to cyclicals in general. This is something that may not necessarily stand out by looking at the selection of Marquee Ideas only.

Over at RBS, however, strategists believe base metals have already run very hard. They also believe data from China will prove less supportive in the weeks ahead. They, thus, preach caution.

If it were up to RBS strategists, investors should be taking a more defensive portfolio stance on a three month view and start taking profits immediately in the mining sector.

RBS also runs a high conviction list, but instead of putting a fancy label on it, RBS simply talks about High Conviction Calls. Last week's update of the list brought no changes, implying RBS strategists are still happy to be long Fortescue ((FMG)), Suncorp-Metway ((SUN)), News Corp (see Macquarie above), Origin Energy ((ORG)) and Southern Cross Media ((SXL)).

RBS's conviction list contains only one negative call and that's on CommBank ((CBA)).

Market strategists at UBS have taken the opportunity to repeat they see plenty of reasons to remain positive on discretionary retailers in Australia, despite the prospects of ongoing interest rate hikes by the RBA.

UBS strategists also consider their positive views on Qantas ((QAN)) and Flight Centre ((FLT)) as derivatives of their positive view on consumer spending in the year ahead.

Similar to Macquarie strategists, UBS remains an advocate for being Overweight resources stocks and contrary to RBS strategists UBS also advocates being Underweight Australian banks.

Resources analysts at Citi issued a timely warning on Macarthur Coal ((MCC)) today. They see the stock lifting higher on overall risk optimism, but Macarthur is actually one of the victims of a stronger AUD, point out the analysts. As they do not see another bid emerging for the coal producer, Citi is happy to stick with a Sell rating.

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