Equity markets remain at the mercy of abnormal macro-economic conditions, such as central bank record low interest rate settings, something no investor alive today has seen before – no wonder markets are volatile. Despite the difficult backdrop, solid equity returns are still achievable via thematically driven and bottom-up stock picking. Most of these themes and bottom-up stock ideas sit outside of your traditional top 20 stocks, so you have to go digging to find the growth. Below are a number of Morgans Financial Limited's key investment themes in the Australian equities market.
Leverage lower interest rates for longer
Morgans Financial Limited’s Chief Economist Michael Knox forecasts at least one more cut in domestic interest rates in order to force a fall in unemployment. Coupled with our view that US rate rises will be slow, this should prolong the relative appeal of high yielding equities over government bonds. We therefore see onto support for utilities, infrastructure, financial and industrials stocks capable of sustaining and growing their dividends.
Rise of the emerging market middle class
In Asia alone, half a billion people already rank in the middle class, more than the EU’s total population. Over the next two decades, the global middle class is expected to expand by three billion, almost exclusively from emerging economies. Australian listed companies have natural advantages in agribusiness/food, education, tourism and professional services. An Aussie food and agricultural boom in particular is in full swing as Asian consumers seek out high quality and reputable Australian products.
Booming inbound tourism
Growing wealth among the emerging Asian middle class (as outlined above) and the lower Australian dollar combine to form a powerful tailwind for inbound Australian tourism. Data produced by Tourism Australia shows increasing momentum in international arrivals to Australia. In 2015, inbound travel increased by 8 per cent, with all of the top 15 inbound markets growing. For the first time more than one million Chinese visited Australia in 2015.
International expenditure grew by 18pc in 2015, with Chinese expenditure more than double the size of the second largest market. Inbound arrival growth benefited from lower airfares (particularly from low-cost airlines), a weak Australian dollar, improving business and consumer sentiment, and security issues in Europe.
Servicing the ageing population
Several developed and emerging nations face demographic challenges as the post WWII baby-boomers grow old. Over the next 40 years the proportion of the Australian population aged over 65 years is predicted to almost double to around 25pc.
This will drive a structural increase in demand for services within the healthcare, retirement accommodation and wealth management. Flight Centre describes a “golden age of travel” as a major opportunity given the baby boomers are the wealthiest and most well-travelled generation ever seen.
The health and wellness revolution
Consumer trends toward healthier eating and living. Again, the increasing wealth of China’s middle class and other Asian countries has generated a greater focus on health and good medicine. The polluted environment of many of Asia’s larger cities is making the population generally unwell and many are now increasingly prepared to pay for quality medicine and foods. We expect this trend to continue to grow over the balance of the decade.
- Boh Burima, Financial Adviser (Authorised Representative: 000341081), Morgans Financial Limited | ABN 49 010 669 726 | AFSL 235410