Equity Strategy Review Today

Submitted by Jim Thesiger on 18 June, 2008 - 11:06

Macquarie Research Equities (MRE) reviewed their Equity Market model and forecasted the returns for the market.

Equity Strategy

In todays note Macquarie Research Equities (MRE) review their Equity Market model and the forecasted returns for the market. The market has recently pulled back. The question arises “Does that represent value returning to the market? And with resources continuing to outperform the market will this trend continue?”

MREs model is now forecasting a total shareholder return (TSR) for the S&P/ASX 200 of +9.3%, comprising a capital return of +5.0% and dividend yield of 4.4%. Within this, the Resources TSR forecast is +12.8% and Industrials +7.6%. For the Small Ordinaries, MRE expect a TSR of +0.3%, comprising a capital return of -4.8% and dividend yield of 5.1%. Within this, the Small Resources TSR forecast is -5.5% and Small Industrials +4.6%.

The sell-off that has ensued since mid May does lead MRE to believe that some value has crept back into the market at current levels, particularly large caps. Noting also that the recent decline has been broad based with both Resources (-6.0%) and Industrials (-9.6%) falling. Industrials FY09 EPSg has continued its downward trend, now +11.0%, down from +14.2% at the end of
April. FY08 EPSg for the sector has slipped to be negative. In contrast, resources FY08 and FY09 EPSg forecasts remain relatively strong at +5.6% and +63.6% respectively.