The risk of Australia experiencing an economic downturn in 2016 is largely reduced, according to Morningstar, with recent economic data indicating that the single-digit growth outlook is stable.
In a recent market update – Australia & New Zealand Equity and Credit Markets Outlook 2016 – Morningstar said Australia’s real GDP forecast of 2.5 per cent for 2016 is “intact” and the risk of “growth turning negative is reduced”.
“Our base case forecasts do not factor in any hard landing for the Australian economy, albeit some sectors will clearly struggle reflecting specific industry dynamics and challenges,” the research house said.
Morningstar expects the commodities drag on equity markets to be lessened, with market direction more likely to be influenced by US monetary policy. Further interest rate rises by the US Federal Reserve will serve to weaken the Australian dollar against the US dollar, but will unlikely assist against the euro or the yen.
The market update also indicated that a 2016 trading range for the S&P/ASX 200 Index will be 5,000 to 5,800, similar to 2015. Further, Morningstar pointed out that the Australian equity market is “marginally undervalued”.
Sectors with a positive 2016 earnings outlook include banks, diversified financials, gaming, healthcare, other industrials and infrastructure.
“We continue to view companies with US dollar earnings positively, such as Brambles, CSL, Resmed and Fisher and Paykel Healthcare,” Morningstar said.
Sectors with a negative 2016 earnings outlook include metals and mining, oil and gas, and mining services, according to the update.
“While some companies may look attractive on a share price/estimated fair value basis, we would still remain cautious and underweight these sectors,” Morningstar said.