Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Reece Birtles, chief investment officer at Martin Currie Australia – the active equity specialist investment manager of Franklin Templeton with more than 140 years of investment experience.


What’s hot right now?

As the economic tide turns, Australia presents a compelling opportunity to capitalise on this trend given the markets strong Value orientation, Martin Currie says.

“The Value investment style has faced material performance headwinds for a prolonged period, as evidenced in the long run of relative underperformance of Value-style market indices, both domestically in Australia and globally,” Birtles said.

“These headwinds had been driven by a combination of factors including benign global inflation rates, sub-trend economic growth, and historically low monetary policy settings.

“This has supported increasingly high valuations across certain segments of the market, particularly in technology and other Growth-style sectors.

“We have been talking about the inevitable rebound in Value performance for more than 12 months as economies recover from the COVID-19 downturn, and why investors should be positioned in quality Australian Value stocks.”

As the economic reopening gathers momentum, Birtles adds the tide has continued to turn in favour of Value performance, and over recent months Growth stocks have seen a severe price reversion.


What trends are you noticing within this improving thematic?

“We believe that the Australian market is particularly well-placed to outperform in an improving economic environment, relative to the US or other global market equivalents.

“The Australian equity market is notably Value-tilted, with a large weighting to very high-quality financials, which will benefit from rising interest rates, and materials/resources which will benefit net zero.”

Conversely, he said the US market is more leveraged to the tech-led Growth thematic, with major technology stocks such as Apple and Amazon making up more than a quarter of the total market capitalisation of the S&P500 index and representing 8 of its top 10 constituents by weight.

“While there are of course Value stock opportunities within the US market, the large concentration in Growth-style names trading on significant multiples highlights the better positioning of the Australian market as an opportunity to capitalise on the rotation to Value.

“We would note that thematic influences associated with these differences have already driven a clear performance dispersion between the two markets over the year to date, with Australia’s greater Value-orientation supporting outperformance relative to the US and other global markets.

“With growing momentum behind the rotation back to Value, we see meaningful opportunity for this relative outperformance to continue.”


Top picks

South32 (ASX:S32)

Birtles says diversified metals and mining company South32 offers attractive and well-diversified exposure to commodities such as aluminium “which we see as key for the energy transition push.”

“We consider S32’s asset base to have high cash generation capacity, translating to a material return opportunity for shareholders,” he says.

“The stock has been very strong in recent months, supported by broad commodity price strength, but on balance of the remaining opportunities we still see further upside for S32 going forward.”


Woodside Petroleum (ASX:WPL)

“Our overweight position in oil and gas producer Woodside Petroleum was initiated in 2017 in response to oil prices trading below our view of long-term normal, which was not reflected in the market’s thinking.

“We have subsequently increased our overweight positioning reflecting the company’s exposure to the energy transition, expanding project pipeline, and upside associated with the merger with BHP’s oil and gas business,” Birtles explains.


Worley (ASX:WOR)

Martine Currie have also been expanding its overweight allocation to global engineering, advisory and project management services company Worley since late 2020.

Birtles says this is due to the company’s beneficial exposure to the capex required to achieve the energy transition to net zero emissions by 2050, as well as increasing capex in its traditional businesses of oil and gas, chemicals, and resources.


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The views, information, or opinions expressed in the interviews in this article are solely those of the interviewee and do not represent the views of Stockhead.

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