Equity Engineer – August 2015 | Long term value emerges with short term risks

Market View: We maintain a bullish long term view on the Australian equity market to reach 6500 in 2016. The RBA move in February and May have made equities the preferred risk/return option for investors wanting more than bond yield return in a rising cost environment. We expect global investors to come back into the Australian equity market when the currency settles in the mid 60 cents. Recent profit taking has brought the market down below where we see the market’s yield weighted fair value level of 5600. Long term investors should accumulate good quality growth/yield stocks. We maintain our positive long term view on the yield trade (i.e. banks, div financials and telecommunication services) while health care looks the best growth/currency story. We remain negative on consumer domestic cyclicals in the short to medium term while being negative on the commodity cycle for the medium to long term. In the short term, the resources are likely to see support as China delivers stimulus and banks sector remains under pressure from capital raising risk. (VIEW LINK)