Evans and Partners

The Financial Engineer – Australian Equities Portfolio Strategy

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The market has positioned itself for rate rises by the RBA; bond rates and the $A have risen and interest-rate sensitive stocks have been hit. We see a rate rise from the RBA as unlikely this calendar year.  The latest CPI data showed inflation below the RBA’s target and the Australian economy faces more challenges from slowing housing construction and pressures on consumers from higher mortgage rates and electricity prices.

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Fifty Trades on Grey

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Demographics played a major role in the era of higher growth, volatile inflation and rising asset prices in the 1980s and 1990s and will be heavily influential again over the next 20 years as baby boomers leave the workforce.

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Market Outlook

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As of 27 February, the ASX200 at 5724, has risen 1.8% on a month to date. The rally this month has been US led, with the S&P500 up 4.0% month to date, the US corporate profit reporting season well received and continuing optimism of a more pro-growth US policy agenda.

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ASX200 Index Target December 2017 = 5500 – 5600

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The ASX200 at 5440 at end November, provided a strong monthly return of 2.8% after the weakness evident from August to October. We see modest price appreciation prospects in the next 12 months as profit growth is delivered, partly offset by PE Ratio de-rating as bond yields move higher. Given US policy uncertainties (and the risks of a US policy mis-step), volatility risk is higher than normal, in our view.

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