With the election out of the way and Labor's more disruptive reforms defeated, market sentiment has clearly taken a turn for the better. Looking ahead, the most likely scenario is that the domestic and global economy will find ways to grind higher, although the likely pace of business activity now looks slower than previously expected.
Political certainty provides some relief but more will be needed
The Coalition victory is undoubtedly positive for the equity market and particularly domestic cyclicals. We note that the market had already priced in the risks that a Labor Government and their 'controversial' policies posed. Banks had their best week in over three years, up 8.1% the week following the election. While investor sentiment has improved and will continue to buoy the market over the short term, we think a clear agenda for stimulating economic growth, other than solely relying on tax cuts and monetary policy, will be necessary to sustain further gains.
Watch
Two changes to our High Conviction picks this month
We have removed Reliance Worldwide (RWC) from our list due to the weaker-than-expected downgrade in May and our subsequent change in recommendation to Hold. While the absence of a freeze event in the US was in line with our expectations, we are concerned about the downturn in multi-res in Australia and the increase on US tariffs on imports from China that could negatively impact FY20 earnings.
We have added OZ Minerals (OZL) given the near 20% correction from its early April peak. In our view this looks far too overdone versus a less dramatic adjustment in A$ copper fundamentals.
Five high conviction ASX100 stocks in June
Our high conviction stocks are those that we think offer the highest risk-adjusted returns over a 12-month timeframe, supported by a higher-than-average level of confidence. They are typically our preferred sector exposures.
Five high conviction ASX100 stocks in June:
- OZ Minerals (OZL)
- Oil Search (OSH)
- ResMed (RMD)
- Sonic Healthcare (SHL)
- Westpac Bank (WBC)
Morgans clients receive access to detailed market analysis and insights, provided by our award-winning research team. Begin your journey with Morgans today to view the exclusive coverage.
Disclosure of interest: Morgans may from time to time hold an interest in any security referred to in this report and may, as principal or agent, sell such interests. Morgans may previously have acted as manager or co-manager of a public offering of any such securities. Morgans affiliates may provide or have provided banking services or corporate finance to the companies referred to in the report. The knowledge of affiliates concerning such services may not be reflected in this report. Morgans advises that it may earn brokerage, commissions, fees or other benefits and advantages, direct or indirect, in connection with the making of a recommendation or a dealing by a client in these securities. Some or all of Morgans Authorised Representatives may be remunerated wholly or partly by way of commission.
