Deutsche Bank’s strategists have outlined what they think will happen to Australian stocks following the election of Donald Trump as US President, which shocked markets yesterday.
Above is a chart showing the moves on a volatile day on the ASX.
Wednesday’s trading saw more than $50 billion in investor value cut from the index. Tim Baker and Joseph Kim, Australian equity strategists for Deutsche, said (emphasis added):
Our European team looks for 5-10% downside from current levels. Australia is already off 5% from its recent peak – we’d see further downside contained at 5%. Such a sell-off would take the PE to 14½x -10% below our fair value model. At spot commodity prices that’d be a PE of 13½x. That’s 15% cheap vs our model – about where it traded when uncertainty was high in 2012.
The rise in risk aversion should boost the USD. A strong USD tends to weigh on commodity prices, which could affect resource stocks.
The big problem, of course, is that nobody knows what really happens next on the macro picture. It’s unclear what a Trump administration looks like.
Prepare for volatile moves.