SHIELD – Sustainable High Yield | Recovering bond market to pull equities higher

The expected short term profit taking in May and the bond market selloff pulled the market below the yield weighted fair value level of 5600. The disparity between the fiscal and monetary policy settings will not help growth recovery and will keep the yield thematic going for the next 12-18 months. Global growth slowdown and commodity decline will be headwinds to any green shoots of recovery. Australian equities are trading at a premium to long term multiples due to the sustainable high dividend yield on offer in a low interest rate environment. We expect the equity markets to recover as the bond yields decline with stabilising bond markets. SHIELD Top 20 picks are: large cap – CBA, ANZ, IAG and SUN; mid cap – CSR and BOQ; small cap – DSH, AFJ, CCV, IMF, UXC, MOC, KMD, CWP and GEM ; and micro cap – FRI, HFA, DDR, TGP and AVJ. (VIEW LINK)