Weekly Broker Wrap: A Not So Happy New Year

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            [1] => ((VBA))
            [2] => ((DOW))
            [3] => ((WTF))
            [4] => ((TEN))
            [5] => ((PRY))
            [6] => ((SUN))
            [7] => ((FWD))
            [8] => ((AMC))
            [9] => ((RIO))
            [10] => ((TLS))
            [11] => ((WBC))
            [12] => ((APN))
            [13] => ((AWE))
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            [0] => LEI
            [1] => VBA
            [2] => DOW
            [3] => WTF
            [4] => TEN
            [5] => PRY
            [6] => SUN
            [7] => FWD
            [8] => AMC
            [9] => RIO
            [10] => TLS
            [11] => WBC
            [12] => APN
            [13] => AWE
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)

This story features DOWNER EDI LIMITED, and other companies.
For more info SHARE ANALYSIS: DOW
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Rudi Filapek-Vandyck

No doubt, investors the world around would have liked to see it differently, but Europe continues to feature prominently in investment banks and stockbrokers research in the final month of 2011. Global equity strategists at Citi set the tone during the week with a rather dire prediction: Europe will have a protracted recession that will last until well into 2013.

Did anyone mention "Happy New Year"?

Citi strategists advised investors across the globe should have another good look at their portfolios and reconsider those companies for whom Europe represents a substantial part of sales and profits. In Australia, Citi highlighted three familiar names: Cochlear ((COH)), Goodman Group ((GMG)) and QBE Insurance ((QBE)). The implication here is that forecasts for these companies will increasingly come under pressure next year and this is likely to weight on the share price.

On the other hand, suggest those same strategists, these stocks are also likely to rally at times of euro-optimism, offering a different perspective for market participants who aim to play short term price movements.

If you think that looks bad, how about global equity strategists at UBS who offered their outlook for 2012 this week and put one ugly looking grizzly bear on the cover of their report, title: Global Bear – Special Edition Outlook 2012. No guessing as to what kind of message they are trying to get across.

The UBS report contains an overview of international equities investors should better avoid in the year ahead, for the same reasons as mentioned by Citi; earnings forecasts will be cut, these share prices looks vulnerable to the downside. Remarkably, there are only two Australian companies mentioned in UBS's lists: Cochlear and Dexus Property ((DXS)).

These predictions were made before yet another break-through in the eurozone troubles over the weekend, but all things economics move slowly and thus downbeat scenarios for Europe are unlikely to be avoided in the short to near term at least.

The future does not only consist of negative news and warnings, however. RBS strategists joined a growing group of experts who believe that fortunes for Chinese equities will turn around for the better in the months ahead while AMP strategist Shane Oliver predicts more interest rate cuts from the RBA next year, which should ultimately provide a boost for the Australian economy, also helped by the fact the Australian dollar is now widely expected to weaken.

Macquarie agrees with this view, and while investors have been enthusiastically buying domestic cyclicals in the Australian share market this month, Macquarie strategists point out what investors too often overlook is that more rate cuts implies the domestic economy will be weaker than previously anticipated. This then means those same domestic oriented companies will see downgrades to growth forecasts.

Macquarie remains convinced there is "significant downside risk" to current market forecasts for FY12. Stocks for whom current forecasts look "unrealistically strong", in Macquarie's view, include Leighton Holdings ((LEI)), Virgin Blue ((VBA)), BlueScope Steel ((BSL)), Toll Holdings ((TOL)), Boral ((BLD)), Downer EDI ((DOW)), Wotif.com ((WTF)), Ten Network ((TEN)), Fairfax Media ((FXJ)), OneSteel ((OST)), Primary Healthcare ((PRY)), Suncorp ((SUN)) and Bank of Queensland ((BOQ)).

Macquarie also offers a list of names for whom already a significant decline in profits is anticipated: Fleetwood ((FWD)), Qantas ((QAN)), GUD Holdings ((GUD)), DuluxGroup ((DLX)), ANZ Bank ((ANZ)), Amcor ((AMC)), Rio Tinto ((RIO)) and BHP Billiton ((BHP)) are all included, plus many others.

Quant analysts at RBS lined up candidates whose profits are likely to surprise to the upside next year: Perseus Mining ((PRU)), Santos ((STO)), Newcrest Mining ((NCM)), Carsales.com ((CRZ)) and Telstra ((TLS)).

In line with ruling market sentiment, RBS's list of candidates likely to surprise in a negative sense is longer: Westpac ((WBC)), Boral, Myer ((MYR)), Macquarie Group ((MQG)), Seven West Media ((SWM)), APN News and Media ((APN)), Cochlear, CSL ((CSL)), Primary Healthcare, OneSteel and Ten Network.

Finally, quant analysts at JP Morgan used a variety of market momentum indicators to select the best and the worst for December in the Australian share market. Amongst the highest scoring candidates for a positive result this month are DuluxGroup, Telstra, Resolute Mining ((RSG)), Orica ((ORI)) and Metcash ((MTS)).

At the bottom of the rankings we find Gloucester Coal ((GCL)), AWE Ltd ((AWE)), Billabong ((BBG)), Qantas and Macquarie Group.

Is it just my observation or have all these lists quite a few names in common?

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