“I believe the Australian equity market not only remains good absolute value but great relative value,” he says. “Earnings quality is better than average, corporate balance sheets are strong and, with record-low interest rates, today’s valuation multiples are more than justified.”
Mr Taylor said 2020 would also feature joint tailwinds from both monetary and fiscal policy.
With the Reserve Bank of Australia already using up much of its monetary policy ammunition, it was likely there would be a step up in fiscal policy, including more infrastructure development.
“This should be good news as low interest rates combined with fiscal stimulus is normally a positive environment for equity returns,” he says.
IFM Investors chief economist Alex Joiner is hoping the federal government will come riding to the rescue with additional fiscal stimulus.
“We would like to see 2020 be the year the Federal Government comes to the fore to assist the RBA in generating growth via fiscal stimulus and reforms – particularly as monetary policy is at the limits of its effectiveness and the global environment remains uncertain,” he says.
T. Rowe portfolio manager Randall Jenneke thinks a likely stronger local economy could fuel further ASX gains.
Australia’s housing correction has turned out to be mild. While prices in Sydney and Melbourne dropped as much as 10 per cent in 2019, they have quickly snapped back, he says.
Average prices went from a decline of 1.3 month over month in December 2018 – the largest fall in about 35 years – to a rise of 2 per cent in November 2019, the largest rise in 16-years.
As long as the improving trends in housing continue, we should start to see a positive impact on consumer spending by the middle of 2020
Any recovery in housing is important for the outlook for consumer spending, as there tends to be a strong wealth effect from residential property to consumer demand, Mr Jenneke says.
“As long as the improving trends in housing continue, we should start to see a positive impact on consumer spending by the middle of 2020,” he says.
Consumers opening their wallets would be good for cyclical stocks, such as retailers, that have long been out of favour with investors.
Housing and building materials stocks would also likely play catch-up, but it would take time, as there is generally a 12-to-18 month lag before housing activity begins to rise in a material way.
However, Bruce Apted, head of portfolio management, Australia, at State Street Global Advisors, says the prospects of recurrent bouts of volatility would see the fund manager maintain a relatively defensive posture in its Australian equity allocations.
The healthcare and technology sectors, which posted among the strongest share price gains in 2019, are now starting to look expensive, Mr Apted says.
“With market valuations on the expensive side, we believe it will be especially important in 2020 to focus on companies that can deliver on earnings growth and to maintain a valuation discipline in your stock selection,” he says.
Stephen is Investment Editor at The Age and Sydney Morning Herald. He writes about personal finance issues and markets as well as editing Money.