Asset Sector Rotation Favouring Equities

Asset Sector Rotation is the chocolate wheel of opportunities available to investment managers, be they professional or self directed investors at any time.

Low yielding cash and now the recent macro prudential lending restrictions imposed on the banks to cool Melbourne and Sydney property markets are influencing investors toward direct equities and managed funds.

The ASX 200 has recently awoken from a sidewards trading pattern and made significant advances. A return to the 6000 level has been spoken about for many years as an aspirational target. It is now looking to be a realistic achievement before year end.

It will be a challenge to breach 6000 and sustain it for any length of time as it has only been above 6000 for a one year period around 2005 – 2006 before falling during the GFC to below 4000.

The secular bull market that has been in place in global equity markets since President Trump was elected 11 months ago has been unforgiving to anyone waiting on a decent 10 – 20% pullback to gain an entry level. The Nike decision – Just Do it! or literally biting the bullet has been the best strategic decision for those assessing all available options. 

Some investment choices do not require excessive leverage or huge quantities of cash to make an initial foray into a market to gain confidence on a continuum of support. 

Interest rates will need to rise rapidly to counter balance this lack of risk premium in yield curves that is fostering what I see will be a steady cross flow from rates yields to equity yields.

Peter Sheahan

Director - Institutional Sales