Equity Market Updates

Submitted by Jim Thesiger on 19 May, 2008 - 21:00

Here are the Macquarie Research Equities (MRE) todays updates about the equity market return forecasts for the coming year.

Equity Market Outlook- Where to find the best returns

Macquarie Research Equities (MRE) has today updated their equity market return forecasts for the coming year, and the results show a continuation of a strengthening trend away from industrials and into resources. The MRE model is now forecasting a total shareholder return for the S&P/ASX 200 of +4.5%. This return is broken up into a capital return of 0.1% and a dividend yield of 4.4%.

If we break this up into Industrial vs Resources, MRE predicts a +3.9% TSR for the industrials vs +5.7% TSR for resources. This predicts a 46% out-performance of resources over industrials.

Within the market more generally, downgrades now outnumber upgrades by more than 2:1, highlighting the ever growing risks to EPS growth as interest costs and slowing global and domestic economies take hold. MRE EPS growth forecasts continue to fall for FY08. In FY09, EPS growth forecasts have risen slightly to 29.9% but this is almost entirely due to the resources sector.

To look at this trend in more details compare the MRE EPS growth trends for Industrials vs Resources;

FY09 EPS growth for industrials is expected to slow from +14.2% to +12%. This is in stark contrast to Resources where FY08 EPS growth of +4.9% is expected to jump to a staggering +67.6% growth in FY09. Cost pressures remain however, and as a result MRE have pared this EPS back within their model to +50% in FY09.

The bottom line, at least as far as MRE is concerned is that portfolios should be skewed in favour of resources over industrials as we approach the year ahead.