Paul Xiradis, Executive Chairman, Chief Investment Officer and Head of Equities at the $12 billion Ausbil Investment Management fund, says the biggest risks to markets in 2020 are deflation and currency wars in a note written before US-Iran crisis.
“Our bottom-up view for 2020 is for some moderate EPS growth, with the year remaining a stock-picker’s year, focusing on high quality companies that benefit from economic growth and a steady but lower AUD,” Mr Xiradis says.
Miners will benefit from increasing demand in China and a lower Australian dollar (which increases earnings once converted to the Aussie).
“In the last resources boom, which peaked in 2011, mining companies invested large amounts of capex in capacity. Now, these companies have excess capacity and lower capex expense which is translating into higher free cash flows and stronger earnings growth across the sector as the world’s demand for resources continues,” Mr Xiradis explained.
He also warned that bond proxies (shares that have predictable and reliable returns, such as infrastructure and property trusts) have run hard since December and ”are now stretched”. He said Ausbil has reduced its position ahead of potential price corrections in the bond proxies.