Each year the analysts at Credit Suisse compile a list of possible, but hopefully unlikely, events which could have a major impact on investment strategies.
“Our global strategy team have compiled their surprises for 2015,” says Credit Suisse.
“These are investment ideas that are not core views of ours but are still credible and will have a disproportionate impact on stocks if they materialise.”
The global surprises include a sharp increase in global stock markets consistent with the late stages of a bull market, the US Fed does not raise rates, a hard landing in China and a crash in global credit markets.
Locally, analysts Hasan Tevfik and Damien Boey have worked out a list of four Australian surprises for 2015:
- The Australian Federal Government embraces expansionary policy. Credit Suisse says: “Our core view remains that the Treasury’s fiscal position will remain largely austere despite growth weakening and the cost of financing hitting the lowest level on record. However, a surprise could be that Treasury reverses course and chooses to stimulate, announcing larger deficits in the upcoming May budget. Gross government debt to GDP could rise from the current 30% which is the second lowest amongst major developed markets, to levels closer to Switzerland at 50%.”
- Foreign demand for Australian housing suddenly stalls. Credit Suisse says: “We expect foreign demand for Australian residential property to expand as wealth in the region continues to grow. A surprise would be if these foreign flows, which we believe are dominated by Chinese buyers, contract.” The resulting fall in demand for housing could prompt the Reserve Bank to cut rates even more than now expected.
- Self-managed superannuation funds (SMSFs) significantly increase their international equity holdings and cut local Australian stocks from their portfolios. At the moment the SMSFs, or selfies as they are nicknamed, have 40% of their portfolio in Australian equities and 1% to 1.5% in international shares. Credit Suisse says: “A surprise would be if Selfies develop an appetite for international equities at the expense of local stocks. This change in focus could come as Selfies hedge against potential upcoming weakness in Aussie equities or even the Aussie dollar.” Credit Suisse expects selfies to be net buyers of $1 billion of Aussie equities per month.
- Australian companies raise capital expenditure significantly. Credit Suisse believes muted capex spending will help deliver double digit increases in free cash flow from Australian companies by 2016. The surprise would be if companies increased their capex spending, something not good for dividends. Credit Suisse says: “While the pick-up in capex maybe be positive for Australian economic activity and job creation, at least in the short term, it will be negative for shareholders as these investment will be made at the expense of capital returns.”
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