Credit Suisse held its 20th annual Asian Investment Conference (AIC) last week, and participants took a bearish view on the Australian share market.
In a research note, CS analysts Hasan Tevfik and Peter Liu provided a summary of the event, which is attended by leading investment managers from the Asian region. Speakers this year included strategists from the world’s biggest investment firms, former French president Nicolas Sarkozy as well as former British prime minister John Major.
At the start of each conference, attendees provide their views on each share market in the Asian region.
While the general consensus was bullish on Asia, respondents turned their backs on Aussie shares. Australia went from being in the top four share markets last year to the bottom three in 2017.
This chart shows the turnaround in sentiment, with the blue bars representing sentiment this year, while the greys show last year’s findings.
The most bullish forecast at this year’s conference was for Chinese shares listed in Hong Kong.
“Collectively, participants forecast that Asian stocks would deliver 20% returns for the year, potentially their best since 2012”, the analysts said.
Among the reasons for a more bearish view of Australia, Tefvik and Liu said that valuation was the most important.
“Australia still looks expensive on simple valuation ratios when compared to other markets in the region”, they said.
The analysts noted that although respondents were bearish on Aussie stocks, they had a positive or neutral view on financials and materials – two sectors which collectively make up 55% of the Australian share market.
In the survey of overweight/underweight positions by sector, financials made a huge run year on year – going from the bottom three to the second most overweight sector. This chart shows the turnaround:
When asked about areas of concern in the economic outlook for 2017, AIC participants cited a rise in trade protectionism in the US as the biggest risk:
“Last year investors were particularly concerned about growth and credit risks in China when more than half the participants highlighted this issue as their biggest risk. This year, just a quarter of respondents were concerned about China”, the analysts said.
On the plus side for Aussie mining stocks, Tevfik and Liu said the AIC provided a positive backdrop for iron ore. They cited feedback from two of China’s largest state-owned enterprises (SOE’s) in the real estate development industry, which is the second biggest buyer of Chinese steel (after infrastructure).
“The number of new construction starts are expected to double in 2017 and the focus is almost exclusively in lower tier-two and tier-three cities”, they said. The analysts expect full capacity utilisation in Chinese steel mills until 2018, after which demand will cool off.
Among other presentations at the conference with relevant information for Australian investors, the analysts cited “the development of a western style Health Care system in China may involve outbound M&A”, and the continuing boom in international travel as wealth spreads in the Chinese middle class.