Australian shares are likely to avoid the deep downgrades that are unfolding elsewhere in the world, most notably in the US.
We maintain this view, and think the outlook is not as bad as forecast by many in the market; Australia is likely to avoid the deep downgrades that are now beginning to unfold elsewhere in the world,There will, of course, be some near-term weaknesses as tighter monetary policy eventually slows activity, and we expect earnings downgrade momentum to increase over coming months as companies, especially those in the retail sector, look to notify the market that activity has dampened.
The US has a significant number of regional banks, and not many of them are well-capitalised, which has created problems in a rising interest rate environment that has seen intense competition for deposits. In comparison, our banks are very well-capitalised, profitable and mark to market regularly. We believe the risk of contagion is low.
We are optimistic this company will deliver some of the best earnings growth compared to the rest of the Australian market, with attractive earnings multiples in the low-20s. We expect a good result in its upcoming reporting announcement, and is the kind of company investors should look to buy at a discount in a volatile market.The market has become very pessimistic about resources companies, but we see good buying opportunities in this sector as well.
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