Australia Beats U.S. on Rotation to Value Stocks Buoyed by Banks
Australia Beats U.S. on Rotation to Value Stocks Buoyed by Banks
(Bloomberg) --
The global shift to value from growth is playing out in Australian shares in force and could help the nation’s benchmark stock index close the gap with regional peers, according to analysts.
The recent surge in domestic value stocks is stronger than in the U.S. in part because the major banks have climbed to a three-month high amid growing optimism surrounding the economy. Australia is primed for a value comeback after becoming one of Asia’s biggest underdogs since the coronavirus outbreak started, Jefferies Group LLC said.
A higher weighting in financials and “old economy” shares has fueled a more substantial value rebound in Australia, Macquarie Group Ltd. analysts wrote in a June 5 note. The nation’s big-four banks make up about a fifth of the S&P/ASX 200 index weighting and have soared 29% since May 22.
Shares that have underperformed since February and seen 2022 earnings downgrades since the beginning of the outbreak may be the best value plays, Macquarie said, citing GPT Group and Australia & New Zealand Banking Group Ltd. among its preferred picks.
Australia’s benchmark index plunged 37% from a record high reached on Feb. 20 as investors fretted over the pandemic’s hit to global growth and oil-market turmoil. Signs that an economic recovery could come quickly have helped almost erase year-to-date losses for equity markets in Malaysia, Korea and New Zealand, outperforming the local gauge which remains down about 9.2% in 2020.
Value Picks
Jefferies favors energy and consumer shares, as they are farthest from their year-to-date peaks and have more ground to regain. Property firm Mirvac Group was one of the global companies it screened as a winner among value stocks.
For AMP Capital Investors Ltd.’s Nader Naeimi, cyclical and value sectors like financials and resources are attractive as economies reopen and more fiscal programs are implemented.
“After a significant underperformance, the sweet spot for a rotation from defensive to cyclicals and from growth to value is now,” said Naeimi, AMP’s head of dynamic markets in Sydney.
Still, ongoing stimulus is needed to keep the value movement going, Macquarie said. The rally will be at risk if policy makers withdraw or taper government support too quickly, the analysts added.
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