...there you go, fundies will soon be selling down their iron ore majors and bank stocks, it is as high as they can go (translation: low value or upside from hereon) . When they come down, indices will stagnate and could go lower.
Looking forward to the day XJO stagnates or down (therefore BBOZ higher) while microcaps (at least selected quality ones) do better .
Market participants need to for once not look at the XJO for direction on the market on whether to be bullish or not. Only then can microcaps march forward in a more consistent way. Retail market participants need confidence and tend to react rather than be proactive. The $2trn fundie selling ASX bank and iron ore stocks
Randal Jenneke of T Rowe Price says the rotation to value may soon reverse as he hunts ‘quality’ stocks in oversold sectors such as health.
Jun 10, 2021 – 3.55pm
If Randal Jenneke, head of Australian equities at T Rowe Price, is right, Australian investors should expect a bit of whiplash in the coming months.
Jenneke believes that the rotation from growth to value that started on the Australian market last October may start to fade in the second half of the year, as stimulus-fuelled economic growth and inflation peak.
T Rowe Price, which has global assets under management of $US1.6 trillion ($2.1 trillion), is already starting to take profits in value positions that have done well – specifically banks and iron miners – and is now starting to position for a swing back to growth.
Jenneke is particularly looking to what he calls “quality growth” stocks, which T Rowe Price defines as stocks that have strong and durable profits and cash flows, pricing power and good management, and names healthcare as a sector he’s particularly keen on after it suffered its worst year in a decade in 2020.
The idea that the market’s next rotation is coming sooner than investors think stands in contrast to what history tells us. Last month Perpetual said there have been eight periods over the past 80 years when growth has beaten value, but the subsequent swing back to value lasts an average of 6.8 years.
T Rowe Price’s view that inflation will remain benign also strikes a contrarian note, given the growing chorus of concern around rising prices.
To be clear, Jenneke doesn’t believe the Australian economy is about to hit some sort of pothole. In fact, he’s upbeat about a domestic recovery he expects will continue to be supported by an accommodative Reserve Bank; T Rowe Price’s Australian portfolios are tilted towards more domestically focused stocks.
But Jenneke’s key point is that a slower growth outlook for 2022 is likely and this will push investors away from cyclical plays and towards Australia’s admittedly small selection of growth stocks.
T Rowe Price’s preference for “quality” is based around the idea these stocks were sold off too hard last year, partly as investors looked for ways to play the recovery trade.
He offers sleep technology group ResMed as an example of a high-quality growth stock T Rowe Price likes. The stock has been on a roller coaster over the past 12 months, as excitement over its pivot to manufacturing ventilators for COVID-19 treatment switched to concern over how sales of sleep apnoea devices in the US would go with the country locked down.
But Jenneke says with a return to more normal conditions in the US and a new product cycle set to start, ResMed’s valuation “is now back to its most attractive level in five years”.
