Barclay’s bull or Pearce take? Why there’s ‘a fair bit of uncertainty’ on the ASX, despite strong FY21 profits
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Each week, corporate advisory firm Barclay Pearce highlights the key trading themes of the week, along with which companies and sectors Stockhead readers should be keeping their eye on.
By and large, ASX companies have presented robust full-year earnings results in August reporting season, with some healthy dividend payments at the big end of town while bad misses have been few and far between.
But with markets at all-time highs in the wake of a post-COVID bull market, Trent Primmer — Head of Trading at investment advisory firm Barclay Pearce — says strong profits aren’t a guarantee of upward re-ratings, with valuations in some areas already looking stretched.
While profits are one part of the story, investors are also looking for clues in forward guidance, and that’s where Primmer says “a fair bit of uncertainty” has crept into the market.
“I think it’s going to be harder to outperform over the next 12 months, and a lot of that comes down to valuations and where the market is overall,” he told Stockhead.
“Frankly, it’s very high. So while companies are reporting strong earnings, the question is already becoming how long they can keep it up for?”
“No one knows how long the issue with Delta will be, and we’re not seeing the broad level of fiscal stimulus we saw last year either which also adds some uncertainty.”
Taking a closer look at reporting season, Primmer said that some of that uncertainty has been reflected in specific company announcements.
“The ASX is so high and company valuations are trading on higher multiples. So even if they only just miss expectations or there’s something negative in their outlook, this isn’t really the market for any kind of uncertainty,” Primmer said.
Perhaps reflecting that sentiment, banking heavyweight CBA edged higher on the day of its full-year results (August 11), but has since posted four straight falls of more than 1% to fall back below $100 in Tuesday trade.
Taking the broader risk outlook into account, Primmer said that for the foreseeable future, the Barclay Pearce portfolio will be structured around commodities — in line with the firm’s central 2021 investment thesis.
“I do think the China demand thematic adds an element of risk to the commodities sector. But it’s still the space where I see the most value over the next 12 months, relative to any other sector,” Primmer said.
Healthcare is his next best bet, given that it’s a sector which usually holds up well in a market slowdown.
“But I’d be wary of of anything that trades on very high multiples,” he said.
“It’s a tricky market for us to assist in structuring client portfolios over the next 12 months because in some areas we just don’t know, but I’d rather err on the side of caution.”
“We’ve still got exposure to gold as that inflation hedge which I’ve discussed before. And elsewhere, the focus is on components tied to the EV/clean energy thematic — nickel, copper, lithium and rare earths — I’d be aiming for those commodities in particular,” Primmer said.
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.