Global Horizon- Alpha with a defensive flavour:: Macquarie Research

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Global Horizon
Alpha with a defensive flavour  
Event
 Richard Gibbs thinks it will be a difficult couple of months for the global
economy.  Developed economies are experiencing slower growth, while
emerging economies are grappling with rising rates and inflation.
Impact
 With macro data flow expected to remain weak over coming months, we do
not expect to see sustained upward momentum in share markets.  This view
is supported by the seasonal weakness normally seen this time of year.
 While we are bullish on the outlook towards the end of the year, expecting
stronger US growth and a reversal on monetary tightening in China, we
maintain a defensive approach for coming months.
 The relative performance of the S&P500 Consumer Discretionary and
Consumer Staples sectors has been an effective indicator of the performance
of the S&P500 in recent years, as it captures the cyclicals to defensives
sector rotation.  With the staples continuing to outperform, we believe the
outperformance of defensive sectors is not yet over.
 At this point we expect this view to remain in place until August, by which time
the seasonal risk begins to fade and we should then begin to see some better
than expected economic data to drive upward momentum.
Outlook
 Given our defensive stance, we have selected a group of defensive stocks
that we expect to outperform in a volatile market.
 The table on the left lists 16 defensive stock picks based on a combination of
bottom up analyst opinions and top down quantitative analysis.
 The list is ranked from highest to lowest alpha as the stock level, and each
stock in the list must also meet the following conditions:
 Defensive sector – health, staples, telecom or utilities
 Positive alpha at stock level and country level
 Outperform rating from analyst, with TSR over 10%
 Market capitalisation greater that US$2 billion
 Given the importance of dividends in the current market, it’s important to note
the average dividend yield for the 16 stocks is 5.9%, with the 5 highest ranked
picks offering an average dividend yield of 8%.