Australia Strategy: 2021 sector outlooks and strategies

About the author:

Tom Sartor
Author name:
By Tom Sartor
Job title:
Senior Analyst
Date posted:
02 December 2020, 9:00 AM
Sectors Covered:
Junior (Emerging) Resources, Bulk Materials

  • Morgans research analysts re set their sector views, strategies and best stock ideas ahead of an accelerating economic recovery into 2021.
  • We see the best current opportunities amongst energy, agriculture, banks/financials and gold stocks, along with select cyclicals and small caps.
  • Updated key picks include Aurizon, Orica, Nufarm, Santos and Ramelius. See our dedicated Morgans Best Ideas publication for fuller detail.
  • The November market bounce was stunning, but we remind investors to continually re asses their portfolio exposures and to prepare for ongoing opportunities as we expect bumps in the road ahead.

Beware the bumps on the road to recovery

The outlook for Australian businesses is improving as they emerge from lockdowns. Recent NAB business surveys have found “the economy has rebounded from the sharp fall in the H1; however, it will likely take some time for activity to fully recover with capacity utilisation restored and the pipeline line of work replenished”.

Improving confidence is encouraging, but similar surveys and the RBA’s own policy statements suggest that it will be 2022 before the economy recovers to pre-COVID activity levels.

The November market bounce in response to vaccine news was stunning; however, just as markets may have overreacted to the downside at COVID’s onset, there may now be a risk they are over-optimistic about a vaccine, its deployment and the timeframe for the economy and corporate profits to fully recover.

We expect bumps in the road ahead, and it's notable that in November the RBA provided further monetary policy support to assist with what is likely to be an extended recovery through 2021. Bumpy markets often provide opportunities for nimble investors.

Recent moves and opportunities

Further rotation into undervalued Energy stocks looks justified against our bullish 1-2 year outlook for oil equities (Santos, Beach). Following years of drought, improved seasonal conditions have provided much needed tailwinds for Agricultural stocks, with good scope for positive earnings operating leverage to return (Inghams, Nufarm).

The recent financial performance of the Major Banks has vindicated our view that the bad debt damage previously being factored into their share prices was overdone.

Strong capital positions and a generally improving asset quality outlook is now supportive of the dividend outlook, helping to sustain the current rotation back into this segment (Westpac). Trading into weakness amongst the Gold stocks offers insurance against a re-escalation of the “risk-off” trade in coming months.

Find out more

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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