Share market opportunities for active investors
(Source: afr.com)

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(Original link: afr.com)

Share market opportunities for active investors By Stewart Oldfield 11 Jan 2019 — 11:00 PM Share
There were few places to successfully invest in 2018, with investment returns sliding across multiple asset classes. With higher interest rates in the US and the Chinese economy slowing, investors in Australian-domiciled assets are going to have to be nimble in 2019 to generate capital gains.
For some professional investors, it has become as much about avoiding the landmines as picking winners.
A bad Santa has already taken its toll with outdoor apparel group Kathmandu reporting disappointing sales over Christmas, sending its shares sharply lower on January 2.
With higher interest rates in the US and the Chinese economy slowing, investors in Australian assets are going to have to be more active in chasing gains. Simon Letch
But it's not all doom and gloom.
On Morgan Stanley numbers, and in local currency terms, total returns from the ASX were relatively robust when compared with other developed market peers in 2018, despite the ASX putting in its worst performance since 2011. Related Quotes Advertisement
The Australian stock market's 1.5 per cent fall in total returns (which includes dividend payments) compared with a 11 per cent fall for the MSCI All-Country World Index, its biggest annual drop since the 2008 financial crisis. Relative strength
Australia outperformed a string of other developed markets including Hong Kong, UK, Canada, Japan and Switzerland.
Centennial Asset Management principal Matthew Kidman says that while some Australian asset classes (such as housing) had become overvalued, equity markets still look attractive in 2019.
He says the ASX has posted an underwhelming recovery since the global financial crisis (GFC) more than a decade ago, especially when compared with recoveries from previous market crises such as in 1987.
"We haven't even reached the old high and its 11 years on. It's appalling. I don't think we have got out of the bear market from the GFC," he adds.
But there are reasons to be optimistic, he says, even as the market factors in the prospect of slower global growth. He expects the ASX to finish 2019 higher than where it started. Advertisement
Companies typically have little debt and valuations are not stretched across a number of major sectors.
"Things are going to be OK," he says.
Centennial Asset Management principal Matthew Kidman says that while some Australian asset classes (such as housing) had become overvalued, equity markets still looked attractive in 2019. Louie Douvis
The backdrop for stock market valuations in 2019 is supported by expectations that, unlike the US in 2018, the RBA won't lift rates in 2019 for fear of exacerbating the housing market downturn .
A consensus view might be that as long as the Australian economy can avoid recession the market looks relatively cheap, at least on an historical perspective. Reasons for optimism
Despite the inevitable landmines (Kathmandu this month, Lend Lease late last year), broking analysts are tipping high single-digit earnings growth for ASX-listed companies for the 2019 financial year.
Beyond the noise of the stock market some seasoned industry watchers are relatively optimistic as well. Advertisement
Phil Ruthven, founder of research firm IBISWorld, believes the Australian economy will remain resilient thanks to the size of its services sector and its proximity to three of the fastest-growing global economies – China, India and Indonesia. Wayne Taylor
Phil Ruthven, founder of research firm IBISWorld, has been studying the industrial make up of the Australian economy since 1971.
He believes the Australian economy will remain resilient thanks to the size of its services sector and its proximity to three of the fastest-growing global economies – China, India and Indonesia.
"They are not going to give up capital expenditure on roads and infrastructure which uses all the minerals that we supply them," he says.
Brokers such as Deutsche Bank agree by continuing to promote an overweight call on resources on the grounds that China is stimulating its economy against the backdrop of concerns about global growth. Sector specifics
Domestically Ruthven says the prospects for the health sector (the ASX's best-performing sector in 2018) also remain robust. The ASX offers exposure to the health sector through a variety of sub sectors including private hospitals, pharmacy, insurance, product manufacturers and biotech.
Ruthven notes that the Australian health sector employs 1.6 million workers, more than the country's retail and manufacturing sectors at their peak. "It can be very competitive and not necessarily easy to make a big profit but it's a healthy industry in terms of its prospects," he adds. Advertisement
Another sector likely to get good traction over the next four or five years is professional and technical services.
"Engineering consultants are going to do quite well because of all the infrastructure growth at [Australian] st...