by Bo Seo
Wilson Asset Management chairman Geoff Wilson is feeling more optimistic about equities and has accepted he “can’t fight the Fed”, whose dovish turn supports the outlook for shares.
“I was ultra-bearish towards the latter part of last year, and now I’m only a little bit bearish,” he told an investor call on Tuesday.
The precipitating factor for the change had been the US Federal Reserve’s “about face” in early 2019, when the central bank paused its intended interest rate hikes.
Mr Wilson has long been forecasting a market downturn, anticipating in 2017 that a crash on the scale of 2008 was imminent. The fund manager’s flagship WAM Capital fund held up to 29.5 per cent of its $1.4 billion gross assets in cash in the 2018 financial year.
As of Tuesday, it has moved to 23 per cent cash.
He said the WAM funds would retain the ability to move to cash quickly, but the Fed’s decision to step back from policy tightening was too important a signal to ignore.
“[It’s] that old saying: you can’t fight the Fed,” he said.
The veteran fund manager said investors needed now to attend to the risk of profit downgrades for individual companies, rather than averting a broad-based downturn.
WAM portfolio manager Matthew Haupt outlined the macro-economic conditions that were likely to affect the local market: post-election fiscal spending, stimulus in China, and tight credit conditions.
Noting the “mismatch” between the Reserve Bank’s neutral bias and market expectations of up to two rate cuts by the RBA in 2019, Mr Haupt said the central bank should cut rates only once this year.
While the rate cut would likely not translate into broader spending across the economy, it would act as a stabiliser and provide a slight short-term bounce to retail stocks, he said.
Mr Haupt expected a greater boost to equity markets to come from domestic fiscal spending, which newly elected governments tended to deliver, and from the wide-ranging stimulus policies announced by the Chinese government in January.
“We like to say this global slowdown was ‘Made in China’,” he said, before adding that any recovery in the country would benefit resource stocks like Rio Tinto and Fortescue Metals, and exporters The a2 Milk Company and Treasury Wine Estates.
But Mr Haupt cautioned that the tightening of credit, enforced by the Australian Prudential Regulation Authority upon banks recovering from the Hayne commission, was unlikely to change in the forseeable future.
The losers from this trend would be banks, for which lower credit growth meant lower profits, and the retail sector, which would suffer from reduced discretionary spending.
WAM’s conclusions follow a highly volatile half-year reporting season, which saw share prices move 5 per cent or more for 30 per cent of companies on the S&P/ASX 200 Index.
Wilson Asset Management made headlines in February, when the Sydney Morning Herald revealed that founder Geoff Wilson had co-ordinated with Victorian MP Tim Wilson to stage protests at a public inquiry into franking credits.
Mr Wilson, who has been a vocal critic of the Labor Party’s proposed crackdown on franking credits, acknowledged on Tuesday the “noise” surrounding the contentious policy.
He said he understood that an ageing population would increase the tax burden on young people, but repeated his claim that the policy unfairly targets individuals with money in self-managed super funds.
“If this was a fair policy, and equitable, I’d have a different view. We’ll keep standing up for what we believe,” he said.