The Experts

Raymond Chan
+ About Raymond Chan

3 investor snippets

Wednesday, September 19, 2018

1. Addressing the elephant in the room

The embarrassment that is Canberra and the fluid policy environment on both sides of politics are pressing issues challenging corporate and investor confidence. We will be following up with the implications of key potential policy change around energy, tax reform and financial regulation. 

2. Reporting season in a nutshell 

The market's most important large caps reported robust results in August, although fewer than usual surprised the market's modest expectations. Pleasingly, results were largely resilient to systemic threats linked to the housing slowdown, the weak consumer and intensifying regulatory and political risks. No bad news was welcomed, as investors accordingly put cash to work by backing solid inline results from key value names. 

3. Value lifts, but expensive stocks get even more expensive 

Investors warmed to in-line results from 'value' names which had been long overlooked among telco, media and retail. However, the record valuation divergence between high PE and low PE stocks further widened in August with the top quartile of high PE stocks surging to 32x (from 29.5x) versus the bottom quartile, which expanded to 16x (from 15x). In many cases, this PE expansion wasn't supported by a rise in consensus profit expectations, which concerns us. Tech and select 'market darlings' stole the show, with this cohort of companies re-rating by a median of 10% (12-month forward PE). In the context of rising cost inflation and interest rates, risks in this segment appear asymmetric, in our view.


Welcome to 'New Normal' in FY18/19

Thursday, July 05, 2018

What has happened?

Over the year (FY17/18),  ASX 200 (XJO) +8.3%, Dow Jones +13.7%, S&P 500 +12.2%, NASDAQ +22.3%, Nikkei +11.3%, Hang Seng +12.4%, Shanghai -10.8%, FTSE +4.4%, AUD/USD -3.8%, Iron Ore +5.5%, Gold +1.0%, Brent +62%, Coal +43%, Copper +9.4%, US 10 year bond yield 2.30% to 2.86% (steepening), Aust 10 year bond yield 2.60% to 2.63% (flattening)

A new normal in FY18/19

  • Our Strategist Andrew Tang provided a useful insight to our market. 
  • Abundant liquidity and accommodative monetary policy have been significant tailwinds for equity markets since the GFC. Liquidity conditions are at an inflection point. Major Central Banks are, or at least considering, normalising policy in the near-future. The Fed has embarked on a steady path of interest rate normalisation, taking the Fed Funds rate from 0.25-0.50% in December 2016 to 1.75-2.00% in June 2018, while the ECB earlier this month committed to ending its asset purchase program by year-end. 

  • Central banks have provided the backstop when financial conditions deteriorate, but this is no longer the case. The Fed did not veer from its commitment to normalising policy in March despite the 12% plunge in the Dow in February. And two weeks ago the ECB announced it would taper and end its asset purchase program, despite the potential fallout from Italy’s precarious political situation.  
  • The Fed believes that it can orchestrate a ‘beautiful normalisation’ though we’re not convinced. Historically the withdrawal of liquidity coincides with a reversal of carry trades and bursting of asset bubbles. We think market disturbances will be more pronounced from now on, but the good news is we don’t see the US entering a recession anytime soon.

  • The outlook for the Australian economy is to pick up in the near term and for the current 26-year expansion to continue for the next few years. But there are some questions over how much of the ongoing economic growth will flow through into share prices. We currently expect the S&P/ASX 200 index to finish the year around the current level, but the outlook, particularly this late in a sustained business cycle, is becoming more vulnerable to various risks, notably higher cost capital and geopolitical risks.
  • We think investors need be more tactical for alpha in a market lacking conviction and without the support of Central Banks.

Some tactical recommendations

  • Barbell strategies and dry powder. Back conviction, growth tailwinds are scarce but not extinct. Retain cash to protect capital and capture opportunities during volatility. This also applies to crystallising profits.
  • Alpha over beta – The abundance of liquidity helped support nearly all asset classes since the GFC. The withdrawal of liquidity will not be as kind. With an estimated 60% of US trading through passive or quant driven flow, conditions will not be as favourable for those simply following the market. We think vanilla passive exposures will struggle (Passive-like LICs, Broad market ETFs: global, emerging markets).
  • Uncorrelated and market neutral exposures – together with cash, cross-asset and uncorrelated market exposures will provide some insurance against the downside risks. 


Latte with Ray - China’s economic reforms

Monday, April 23, 2018

China economic data

Early last week Chinese GDP growth for the March quarter came in at 6.8%, ahead of the 6.7% expected via the Reuters poll and ahead of the governments target of 6.5%. Retail sales were particularly strong, growing at 10.1% - also ahead of expectations - demonstrating good momentum in the re-balancing of the Chinese economy toward consumption.  

Muted market response

Markets initially responded strongly to this news, however this faded over subsequent days, due arguably to ongoing geopolitical concerns related to trade policy. E.g. Two weeks ago the US imposed sanctions on several Russian industrialists, including Rusal, the worlds largest non-Chinese supplier of aluminium. This week the US denied export privileges to major, State-owned Chinese telecommunications equipment maker ZTE which has maintained tension to US/China trade relations.

China's central bank delivers the biggest surprise

The biggest market surprise has been delivered by China's central bank which yesterday cut its Reserve Requirement Ratios (cash that lenders must keep in reserves to back their lending). Loosening liquidity has been interpreted as a precaution against the potential negative impacts from extended trade "negotiations". China has ample capacity to continue releasing such liquidity in defence of economic growth and stability. 

Impact to commodity markets

Higher Chinese liquidty has put a rocket under commodity markets overnight. Greater domestic confidence and liquidity in the Chinese economy has seen a surge in commodities trading (both fundamental and speculative) several times in the last decade. As we know, the marginal Chinese investor is a huge influence in setting the marginal price in these markers. Current momentum is positive, but be aware that this can change quickly. Further below we show how quickly the aluminium and nickel markets in particular have moved ahead of market expectations.

Spot Base metals prices versus Morgans forecasts - Nickel often attracts intense speculation / momentum in buoyant markets given its; 1) strong economic sensitivity, and 2) smaller market size, which amplifies price dynamics. 




Latte with Ray – China and Russia get closer

Thursday, November 02, 2017

By Raymond Chan
After spending a week in Moscow, I observed Chinese tourists were everywhere in the city while it is also very common for Russians to take Mandarin lessons at universities. Since the dissolution of territorial disputes between China and Russia during Jiang Zemin’s era, the relations between the two countries have been developing remarkably rapidly. Undoubtedly, rich resources from Russia are beneficial to China while high productivity and sufficient capital from China are beneficial to Russia.
China remains the largest trading partner of Russia

“China is Russia's largest trading partner,” indicated Kirill Dmitriev, head of the Russian Direct Investment Fund (RDIF), at the latest BRICS Summit held in Xiamen. Last year saw a 12 percent growth in Chinese direct investment in Russia. Kirill Dmitriev considers the Chinese-Russian tie greatly positive. The RDIF recently has announced a partnership with the China Development Bank (CDB) and is expected to provide an opportunity for Chinese investors to directly invest with settlements in yuan (RMB).
Although the total trade volume between China and Russia was once affected by the collapse of commodity prices, China remains the largest trading partner of Russia, reflecting a good foundation of the bilateral trade. The bilateral trade volume is expected to exceed 80 billion US dollars. This is not only limited to minerals, and a significant amount of agricultural products are also being exported from Russia to China.
With the painful experience of the global financial crisis in 2008, economists generally agree that development in a multipolar global economy is more desirable than merely relying on America’s “unipolar”.
China’s high productivity is unquestionable. So, the question is, “does Russia deserve Chinese investment?”
A mutually beneficial relationship is built between the nations

A few years ago, Russia implemented an integrated Arctic strategy. The country ambitiously extracted natural gas from the Arctic and constructed an airport and a military base in Alexandra Land. 100,000 tons of building materials and 140,000 tons of equipment were delivered to the area. Forecasting China's demand and funding would continue to grow, Russia had already realised that the commitment to the mining development in the Arctic could be of mutual interest to the nation and China. Russia is benefiting from the infrastructure brought by China’s One Belt One Road (OBOR) strategy, while China can enjoy the low cost of the natural mineral and gas resources from Russia – but the real mutual benefits are that no aggression nor hegemony is called for.
China’s OBOR strategy has a positive role in promoting economic and trade cooperation with Russia; the amount of human resources and funds investing in the collaboration between the two countries for the mining development in the Arctic is unprecedented. The dissolution of territorial disputes between China and Russia gives a way for better China-Russia trade relations.
Political issues do matter

In Australia, analysts do not put much emphasis on the economic and trade cooperation among BRICS countries, that is, Russia, India, China, Brazil and South Africa. In fact, analysts should not only pay attention to stock markets or statistics but also to political issues.
The Russian Far East strategy is not simply about the relation with China, but with North Korea and Japan as well. North Korea is facing United Nations sanctions for its escalating nuclear and missile programs; local resources are in short supply, not to mention funds for overseas investments. As for Japan, right-wing populism has put the plan for systematic cooperation with Russia to death. The nation tried to create a comprehensive logistic chain between the two countries, but to no avail. Therefore, politics always decides the prospects for economic and trade relations between nations.
The China-Russia trade relationship is essential for the world

Moreover, the Chinese-Russian tie has often been overlooked in multinational trade. Research scholars in China believe enhancing the economic and trade relations with Russia will help revitalise the old industrial bases in the northeast.
Australian media hardly mentioned the fact that the RDIF and the CDB have agreed to establish a Russian-Chinese investment fund worth 68 billion RMB. The funding from the 15-year-agreement will be spent on development of the Far East and Siberia for energy, transportation, industry, power facilities and cross-border projects.
At the moment, Russia has stepped out of the financial crisis and entered a period of economic growth. China and Russia do not purely care about whether the trades are settled in yuan or ruble; according to the officials, the two nations are doing their best to prevent the negative impact of trade activities by fluctuations in foreign exchange markets. In other words, to exclude the US dollar factor and prevent the problematic impacts of hedge funds on financial markets again.
The aftermath of the world economic crisis is not scattered and the global economic growth recovery is slow and weak, it is necessary to put the old rules aside and seek new directions.
In 2016, China's total crude oil imports from Russia reached 52.3 million tons. Russia overtook Saudi Arabia to become China's biggest crude oil supplier for the first year ever. In the first five months of this year, bilateral trade between China and Russia has skyrocketed with an increase of over 33%. A close China-Russia trade relationship is essential for us, and for the world!


Latte with Ray: Value in resources?

Thursday, October 12, 2017

By Raymond Chan

In September, we exercised our caution in short term stock market performance. It’s proven to be right with the ASX 200 (XJO) down 0.58% for the month of September. We’re now expecting a better October in the lead-up to the AGM season.

This month, Latte with Ray would like to draw your attention to the Resource Sector. Our analyst Adrian Prendergast has been accurate in calling the resource sector and here are our latest thoughts.

Is there value in resources after peak cost-out?

There is still value on offer in resources, but it is harder to find now that: 1) the majority of resource industries have reached peak cost-out levels (with only incremental gains or cost inflation on offer from here), and 2) after the large ‘relief rally’ from recovering commodity prices that has carried sector valuations to multi-year highs. With the easy gains in the sector now made, we still see value in two areas: 1) those companies already holding value-accretive volume growth options (OSH, BHP, RIO), and 2) resource companies with earnings in an upgrade cycle (where spot prices are above current consensus forecasts – i.e. raw materials, base metals and now oil).

Time to take a breather

Even though we see the recovery cycle as remaining on track, we also see potential for the sector to take a short ‘breather’ in some areas in the fourth quarter after posting strong gains during 2017. Short-term demand conditions, particularly for raw materials like iron ore, look significantly weaker heading into the December quarter. We see aggregate consumption of the important steel additive as likely to be impacted by Beijing’s efforts to suppress pollution ahead of China’s 19th National Congress in mid-October. We also see some fresh tightening of liquidity in China also likely to hurt short-term demand for metals.

Changes to commodity forecasts

We have marked-to-market our CY18 forecasts, which continue to see an upgrade trend remain on outperforming metal prices. Post the northern hemisphere winter (where we expect volatility), we believe positive demand fundamentals across key manufacturing and construction regions will support metal prices at healthy levels. The pace and focus of China’s industry reforms also remains an area of focus for us that could further impact our forecasts (although in the case of aluminium this appears to be already factored in). In the oil and gas sector, we have trimmed our CY17-19 oil price forecasts to factor in a longer range-bound period before recovery (which we expect to be dictated by the duration of tier 1 shale reserves that remain an important contributor to marginal cost). We forecast the oil price to improve as the low-cost shale reserves are drilled out.

How to play the sector

Share prices of our large-cap miners have (so far) proved resilient against some pull back in metal prices. However, our expectation for weaker fourth quarter conditions could see selling pressure increase over the coming months. Given our forecasts for a continuation of the recovery cycle for metals (beyond Q4), we would view any sell-off as having potential to create a buying opportunity in our preferred sector exposures. Meanwhile the quality of earnings/management/assets in oil & gas remain much more varied and a case-by-case proposition.


Reporting season: Volatility breeds opportunity

Tuesday, August 08, 2017

By Raymond Chan

Welcome to the Australian reporting season! 

Below is an update from our strategy team on the first full week of reporting season.

It's difficult to read a lot into last week’s results, with only 13 out of 250 odd stocks of interest having reported so far. However, it's been disconcerting to see the market's reaction to profit warnings and poor results (and even some flat results) which has driven localised volatility in various names, both small and big. 

Navitas, Freelancer, iSentia and Select Harvests are all either high-PE or highly-cyclical growth stocks, which all issued either disappointing results or downgrades last week and were subsequently sold off by 12-18%. 

ASX 100 stock ResMed reported strong underlying revenues but higher-than-expected costs and was sold down 6% on the day, which the Healthcare team thought excessive. ASX 50 stock Suncorp fell 6% after slightly disappointing earnings (claims and costs).

As we flagged in our reporting season preview, it is proving difficult for corporate results to not disappoint a market trading on fair-to-fully priced valuations. However, volatility breeds opportunities and we expect more over-selling situations in quality names like ResMed to unfold during reporting season.

Looking to key results in the coming days:

Tuesday - Transurban

Wednesday - CBA, Carsales, Seven Group (tbc)

Thursday - Orora, AMP, AGL 

Friday - REA Group, NAB (Quarterly) 

Transurban: The focus will be on costs, FY18 DPS guidance and FY18-20 LTI targets. 

CBA: Expect result to be broadly in line with consensus. Focus will fall on the AUSTRAC civil case and possible implications for the other majors.

Carsales: We're looking for more colour on recent price rises and the new competitor. Trading on 22x FY18.

Orora: Australasia is subdued, while North American momentum should continue. Key will be impact of energy cost headwinds in Australasia from FY18. 

AMP: We expect a relatively stable result, given AUS/NZ equity markets are slightly up for the half (NZ+8%).

REA Group: Commentary on volume growth is the key to holding recent price gains. Trading on 32x FY18.


Latte with Ray: National Broadband Network

Tuesday, May 23, 2017

By Raymond Chan

There has been a lot of talk about the National Broadband Network (NBN) and its potential impact on Australian Telco companies.

Our analyst, Nick Harris, provides us with a great update on the progress of the NBN.

NBN market share trends

Looking at Fixed Line NBN connections for the March 2017 quarter, Telstra (TLS) tracked at 53% of NBN net adds from December 2016 to March 2017. This was down ~200bps on the Dec-16 quarter, but still above their legacy market share of ~48% (albeit below their regional market share).

TPG Telecom (TPM) tracked at 21% (up 25bps on Dec 16, but still down on their legacy market share of ~27%). Optus tracked at 13%, which was down 20bps on the Dec 16 quarter and still below their legacy market share of ~15%. Vocus Group (VOC) tracked at 9.4%, which was up 110bps on the Dec 16 quarter and above their legacy market share of ~7%. Market share from others (not the big four Telcos) continues to expand slowly.

Telco shopper: Plan pricing continues to decline

The average NBN Fixed Line pricing for both entry level (25mbps) and premium connections (100mbps) continues to decline, with the average plan pricing falling 13% since Aug-16. Premium plan pricing has fallen more severely (-20% in the same timeframe), showing that customers are not willing to pay more for higher speeds.

Belong (Telstra’s challenger brand) and Optus have the cheapest plans in the market. They aggressively dropped prices over the last six months, and raised them in May, but still offer the cheapest 25mbps plans in the market. We continue to take a view that until the NBN rollout is completed (and the once-in-a-lifetime forced churn event finalised), Telcos will compete aggressively on headline prices.

Overall, we think investors should underweight stocks with “legacy Fixed Line” business. 

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.


Latte with Ray: Agriculture Investments

Wednesday, April 19, 2017

By Raymond Chan

Latte with Ray would like to talk about agriculture investments this month.

In late March, we attended the Global Food Forum in Melbourne. It’s a conference where everyone in the Agricultural and Food industry gets together to hear from high-quality speakers including Andrew Pratt and Gina Rinehart.

The listed companies which spoke included Woolworths (WOW), a2 Milk Company (A2M), Blackmores (BKL), Ingham’s Group (ING), Bega Cheese (BGA), Fonterra Shareholders' Fund (FSF) and Costa Group (CGC).

This year, there was record attendance with 421 participants. The mood of the event was one of excitement and confidence in the industry’s future.

The conference reinforced to us that the sector is in good shape and investment demand has never been stronger.

Our analyst Belinda Moore summarised the key themes and issues presented at the conference:

  • Golden era for agriculture and the Dining Boom.
  • The important role Australian agriculture plays in our economy.
  • Benefits of the Free Trade Agreements (FTA) that will reduce tariffs overtime, and increase Australia’s competitive position.
  • China’s commitment to e-commerce and the Free Trade Zones (FTZ).
  • Australia’s position as a clean, green, quality and importantly, safe producer.
  • The issue of provenance – consumers are questioning - more than ever - where their food comes from.
  • Animal welfare is also a key consumer concern – e.g. demand for free range.
  • Need to reduce food waste.
  • Food producers need a strong brand so they aren’t competing at the commodity end, and the need for differentiation is extremely important.
  • Strong demand for health foods and organics – the supermarkets are increasingly looking to expand in this area to achieve sales growth.
  • Producers and food companies are a beneficiary of Amazon Fresh coming to Australia as a new customer. It will reduce the power of the major supermarkets or pharmacy chains.
  • Farming smarter – The Ag-Tech Revolution. Farmers need to apply technology to improve yields and productivity and to make Australian agriculture more competitive.
  • Tax cuts are required to make Australia more globally competitive, however, they need to be reinvested back into growth.
  • More foreign investment is required, but don’t be scared of Chinese investment.
  • Dairy industry will survive and prosper in the future, despite last year’s events.
  • Negative implications of rising gas and energy prices will eventually need to be passed onto the consumer, as efficiency initiatives won’t fully offset them.


Latte with Ray: US equities vs Trump's rhetoric

Thursday, March 02, 2017

By Raymond Chan

Our Chief Economist Michael Knox, and our Strategy Team, came up with an excellent piece of research on Trump's speech. Latte with Ray thinks it will be beneficial to share this with our Switzer readers. 

Donald Trump delivers his first speech to Congress

The content of yesterday's speech will be pored over by financial journalists in the coming days, and is an important marker in the context of the S&P500's record run. We thought it was timely to circulate Michael Knox's views on Trump's agenda and the enthusiasm already built into US equities, arguably with flow on effects to Australian shares.

Our strategist Michael Knox's view in a nutshell

The outlook for the US economy is good and the outlook for US earnings is even better. However, the US equities market is now pricing itself very fully on the prospect of better earnings in the future. Part of the reason for that optimism is the prospect of much lower corporate tax rates. We think that these tax reforms are guaranteed to have a noisy passage through the US Senate and that this could easily give inflated equity markets a scare.

Michael's views in more detail: "Too much good news"

Since the US presidential election in November, the US stock market has been rising strongly. This rise has been followed by a similar rise in Australian equities. This partly reflects better fundamentals, but much more of this rise simply reflects better sentiment. 

A stronger US economy 

In 2016, the US economy was relatively soft. GDP grew at only 1.6% for the full year. The reason for the weakness was a slowdown in non-residential construction. Very low oil prices in the beginning of 2016 meant a much lower level of investment in oil drilling, gas drilling, and energy infrastructure such as gas pipelines. Improving energy prices in the second half of 2016 caused the beginning of a recovery in the same non-residential construction. In 2017, the US economy should accelerate to 2.3%. In 2018, growth should pick up further to 2.7%. This improving economic outlook has generated a remarkable scenario for operating earnings per share of US corporations. 

However, US stocks look to have overshot our model of the S&P500 

With stronger growth and the prospect of much better earnings, it's not surprising that the US stock market has risen. The question is, has it risen too much? We model the S&P500 based on the level of operating earnings per share and US 10-year bond yields. This gives us a pretty good model explaining more than 80% of monthly variations. 

S&P 500 Operating Earnings

The problem is what the model now tells us. Based on the current level of earnings per share and bond yields, our fair value for the S&P500 in February 2017 is only 1916 points. At the time of writing, the market was way above that, at 2351 points. In the future, earnings will justify such a level of the S&P500, at a level of bond yields around where they are now. The problem is how far in the future it will be before earnings provides that justification. 

Our model tells us that, even with the much better earnings expected in the future, fair value of the S&P500 does not reach a fair value of 2338 until the third quarter of 2018 and 2394 until the fourth quarter of 2018. That means that the S&P500 is currently trading at fair value based on earnings that do not arrive until the third and the fourth quarter of 2018. 

Rotation from debt to equity has been driving equity prices

Why is this happening? We think that the US market is receiving a flood of liquidity from the US corporate debt market. The difference between US corporate yields and US sovereign yields has fallen dramatically since February 2016. Where previously investors might have bought corporate debt, the decline in the yield on that debt is now leading investors to switch from corporate debt to corporate equity. The money from the corporate debt market is flooding into equity prices and driving equities to a level that the market does not yet justify.

And, of course, euphoria around promised tax rate cuts

In addition to liquidity, the market is being supported by sentiment. Much of this sentiment is driven by the prospect that the new Republican administration will cut corporate tax rates. We have written before about the proposal to cut US corporate tax rates from 35% to 20% and maybe even to 15%. These corporate tax cuts are possible through the elimination of most of the corporate tax deductions that currently exist in the tax code. In addition, revenue is raised through a border adjustment tax. The elimination of tax deductions for corporate imports provides an effective revenue tariff of 20%, assuming a corporate tax rate of 20%. 

The problem is that even though those proposals have the support of the House of Representatives and the American President, they have yet to gain the support of the American Senate. US elections are much more open to the operation of lobbyists than is the case in Australia. This is primarily because of the very large cost of running elections in the US. This, in turn, is due partly to the high cost of advertising to very large populations.

There is no doubt that some Republican donors currently feel that the businesses that they are engaged in will lose out through the introduction of the Border Adjustment Tax. Our understanding is that this has resulted in heavy lobbying against the Border Adjustment Tax in the US Senate.

The problem is that without the Border Adjustment Tax, there is not enough revenue to support a cut in the corporate tax rate. Without the Border Adjustment Tax, a cut in the corporate tax rate will result in a large budget deficit. 

The stock market is banking on a cut in the corporate tax rate. Unfortunately, the passage of the corporate tax cut through the US senate is likely to be achieved only after much public argument. As the market sees those corporate tax cuts at risk, it is possible that its reaction could be both volatile and negative. 


Australian reporting season preview

Thursday, February 02, 2017

By Raymond Chan

Happy Lunar New Year to all! We wish all readers a happy, healthy and prosperous Year of the Rooster. 

Since the beginning of the year, we have seen mixed performances from global markets:

ASX 200: -0.8% 5,620 points,

Dow Jones: +0.5%

S&P 500: +1.8%

NASDAQ: +4.3%

Nikkei 225: -0.4%,

Hang Seng: +6.2%

Shanghai: +1.8%

FTSE: -0.6%

AUD/USD: +5.3% at 0.7586

Iron Ore: +4.4%

Gold: +5.2%

Brent: -2%

Copper: +8.7% 

The Australian reporting season will kick start with market heavyweights Macquarie (MQG) and Transurban (TCL) early next week.

Based on consensus estimates, the EPS growth for the ASX 200 is expected to be 12% for FY17. This is important as after two conservative years of earnings FALLS (led by resources and energy), we’re likely to have one year of earnings GROWTH! 

It's no doubt the ASX 200 is trading on an expensive PE - over 16 times on FY17 estimates - and as such, investors will be looking for clues from reporting seasons on the sustainability of earnings growth (not only for FY17, but also for FY18). 

The key things to watch will be management commentary on:

(a) sustainability of payout ratio,
(b) planned capital spending,
(c) commodity prices (for miners),
(b) housing (for REITs and construction companies),
(c) interest rate (especially important on banks and infrastructure stocks) and;
(d) AUD/USD (for offshore earners)

Our strategy team wrote: “The diminishing risk of global deflation has prompted a revaluation of the outlook for growth among investors. Against an expensive market (>16x 12-month forward PE), the prospects for improved pricing power and demand have increased the appeal for the overlooked ‘value’ segment of the market (low price-to-earnings and price-to-book).

We think that ‘value’ [segment] (stocks with low expectations) has a higher propensity to surprise and therefore attract buyers this reporting season, while expensive stocks will be punished if elevated expectations are missed - Brambles is a timely reminder against complacency.” 

Further, mining stocks will also be the bright spot of this reporting season: both BHP and RIO may surprise on capital management after spending considerable time in cutting down costs and dividends during tough times.



Latte with Ray: Trump and stocks in the buy zone

Latte with Ray: Europe's big challenges and buying opportunities

Latte with Ray: Market curve-balls and buying opportunities

Latte with Ray: Ausgrid and reporting season

Latte with Ray: implications of a hung parliament

Latte with Ray: Blue chips in focus

Latte with Ray: Is the share market in for a bumpy ride?

Latte with Ray - China's tricky “tightening” policies

Latte with Ray - the stock market outlook

Income opportunity for 3 dividends in 13 months

Latte with Ray - what has happened to S&P/ASX 20 stocks?

Latte with Ray - good value at CBA

Latte with Ray - the end of earnings downgrades?

Is Australia’s inverted yield curve signalling recession?

Latte with Ray – agricultural stocks to buy

Latte with Ray October edition

Latte with Ray – Australian reporting season

Our thoughts on Healthscope

Why did Chinese stocks underperform?

Federal Budget 2014 in review

Hong Kong mines and money

Portfolio positioning after reporting seasons

Is the S&P 500 about to correct?

Global and Australian economic outlook

Are resource stocks set to take off?

Coalition won back the government