Rudi’s View: Investment Themes For The Year Ahead

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Sep 09 2021

In this week's Weekly Insights:

-September Blues
-Post-August: Five Themes For The Year Ahead
-August: The Final Numbers
-All-Weathers In August
-Conviction Calls
-Research To Download
-More on the August results season

By Rudi Filapek-Vandyck, Editor FNArena

September Blues

Last year, September was simply a pause in between the recovery from the pandemic sell-off and the subsequent low-volatility up-trend that still remains in place today.

In 2019, however, September delivered a lot more volatility and share market weakness. Things werent't looking too bright for the old economy parts of the Australian economy, and banks and cyclicals began announcing dividend cuts soon after.

In 2018, economic data started rolling over and the Federal Reserve seemed hell-bent on continuing to lift the official cash rate. Equities started to weaken and soon in quite the violent way, until the US Fed backtracked from its intention, but not before late December.

Pick your pick. September historically is the weakest month for US equities and more often than not does the month inject more volatility into financial markets, if only because we, the human participants, expect it to do exactly that.

Usually, the weakest and potentially most volatile period for the year announces itself between the second week of September and the second week of October. Roughly from mid-month to mid-month. Nobody knows exactly why.

So should we be worried?

As per the above mentioned three years past, the scenario for September is never set in stone. And only once in the three years did September open up the floodgate for something more serious to unfold than a pause or a temporary retreat.

This year, the focus is on decelerating global growth. How serious is it? How long will it last? I suspect most market participants are still quite sanguine about it. And there's a very straightforward reason for it: covid and lockdowns are to blame.

Media and commentators are constantly asking the question whether inflation is to remain 'transitory' or not, but I think most investors see the second half slump as 'transitory', and that's in itself an important observation.

It means investors are by definition looking beyond the months ahead and focusing on January 2022, and beyond. Covid and lockdowns are excruciatingly tough on small businesses and the most vulnerable in societies, but many consumers are running up their savings and are expected to re-emerge while wildly swinging their wallets, once they are allowed to.

It is this prospect, I believe, that will act as a natural deterrent to seeing markets drop into a violent black hole, irrespective of pockets of market exuberance, in particularly in the US, and generally elevated valuations, more so in the US than elsewhere.

My advice is therefore the same as with every other period of share market volatility: investors should use this period to reshuffle their portfolios.

Excellent long-term performers might become available at share prices that seemed impossible only a week ago.

And aren't we extremely lucky in Australia in that the August reporting season has only just finished; all data, forecasts, insights and views have been freshly updated.

Post-August: Five Themes For The Year Ahead

Corporate reporting seasons are the ideal event to update thoughts, views, even whole strategies. Ord Minnett's Australian Equities Strategist, Sze Chuah, has taken the opportunity to review key investment themes for the year ahead. An exercise that should benefit us all.

Investment Theme #1 - Reopening societies and recovering economies:

-Consumers will increase their spending, but probably more towards restaurants, travel and entertainment, and probably more domestically as international travel won't be as popular or even available;
-Increased mobility will lead to a pick-up in energy usage and transport;
-This theme is most likely to favour the so-called 'Value'-trade

Ord Minnett's list of stocks to play this theme already contained ANZ Bank ((ANZ)), Origin Energy ((ORG)), Ramsay Health Care ((RHC)), SeaLink Travel ((SLK)), Star Entertainment ((SGR) and Tyro Payments ((TYR)). Post-August, Webjet ((WEB)) has now been added to the selection.

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