The Australian equities markets has had a rollercoaster ride in 2016 but it’s come home with a wet sail, is that momentum going to keep going in 2017? As part of Livewire’s 2017 Outlooks Series, Centennial Asset Management Matthew Kidman and Livewire’s James Marlay ask five stock pickers (including Chief Investment Officer Chris Stott):

Q. What’s your view on the outlook for equities in 2017? (Bullish/Bearish/Neutral)

Wilson Asset Management’s Chris Stott: Bullish over the next 12 months for the Aussie market. Global growth’s improving, the Australian economy’s improving, equities are going up.

TMS Capital’s Ben Clark: I’m a bull. I think you got to look at the major index components, and I think they’ve got a good growth profile for the first time in a while. The growth area of the market, the mid-caps that have been really hammered the last few months could bounce back, which will help the index get higher.

Centennial Asset Management’s Matthew Kidman: Very bullish. I think we’re heading into a very good time for equities. It will be lead by the US, and we will drag a bit. I don’t think resources will perform, but I think the rest of the market will join the rally. I think we could easily be up 15-20% in the next year or so.

Forager Funds Steve Johnson: I don’t actually have a strong view, James. I think today’s level is fair, and I think there are risks and reward potential from here. I think it’s a time for a really sensible portfolio. You don’t need to be doing anything outrageous or making any big moves in today’s market.

Bell Potter’s Richard Coppleson: I’m a bull for ’17. We’re going to see positive EPS growth for the first time in many years. Massive inflows will probably come into equities via moving out of bonds as investors now start looking for more growth. Also, superannuation flows will be positive for the first six months, as people move money into super before the super rules change on July 1.

Q. Large caps v small caps: Which part of the market will outperform in 2017?

Coppleson: I think Small Caps will win. They’ve been decimated recently by big cap fund managers moving money out of the Small Ords into the Top 20, especially BHP, RIO and the banks, which have had some of the biggest volumes seen in two and three years. I think the Small Ords will have a resurface and go again. That’s where the real growth is.

Clark: I’ll take Small Caps because I think they’ve got stronger earnings growth than the big guys. We’re seeing valuations in Small Caps that we haven’t seen for a number of years following a brutal selloff.

Stott: Large Caps will outperform Small Caps after two or three really strong years from the Small Caps. We think the banks and resources continue to lead the market higher.

Johnson: I think you just want to be well balanced. We’ve seen the risks of owning some of these small caps really come to the fore over the past couple of months. I think the benefits of some of the large cap-stable businesses have been lost a little bit over this last year. I think if we go through a difficult environment, you’ll see some of those benefits come to the fore. That is you’re going to keep getting paid your dividends and that the businesses are still going to be profitable in a difficult economic environment. Whereas some of the small caps, you can see dramatic changes in their profitability.

Kidman: Small Caps have had a bit of a silent crash. It’s happened underneath all the noise. I think the Big Caps, they’re on the front foot at the moment – money is in there. I think over the course of ’17, everyone will join in and the second half of 2017, the Small Caps will catch up. It will be level pegging by the end of the year.

Q. What’s the best stock for 2017 and why?

Stott: Imdex. Exposed to the improving minerals cycle, divesting it’s oil and gas business. The company has been through a few cycles before. They’ve de-levered the balance sheet and the capital structure has been cleaned up. We think that one goes a lot higher.

Kidman: I think you want to have a stock that’s leveraged to a higher equity prices over the year and a good recovery. That’s Centrepoint Alliance, which is Australia’s biggest independent financial planning group. I like that.

Clark: Staying with the Small Cap theme I’ll go Altium. We thought it had one of the best results in the August reporting season with a meaningful upgrade on its long-term revenue guidance. Great management, structural growth in their industry, and they’re growing faster and taking market share. A possible catalyst will be the continued alliance with Dassault Systems, the French software giant.

Coppleson: I’m a big fan of macro, by that I like tourism. Chinese tourism has reached a million visitors. Southeast Asian tourism is up. Event Hospitality and Leisure is the one that gives you good exposure with all their hotels. It also gives you exposure to the cinema business via Gold Class, which is doing well. I think that would be a good play this year.

Johnson: I’m going to pick a really, really big one here, and say Alphabet should be a core part of people’s portfolio. I think the owner of Google is an absolutely fantastic business. The advertising dollars shifting online are still a long way behind where the eyeballs are. Two companies, Google and Facebook are taking all of the revenue in that online space, and I think that is going to continue to happen. They have a new CFO, Ruth Porat, who has been doing a marvellous job of getting the tech guys to focus on making profit. I think you’re going to see that trend continue to unfold over the next few years.

This is an edited transcript from Livewire’s Outlook Series Part 2.

Panel: Matthew Kidman, Centennial Asset Management; Chris Stott, Wilson Asset Management; Ben Clark, TMS Capital; Richard Coppleson, Bell Potter; Steve Johnson, Forager Funds

Disclaimer: The information contained in this presentation is general in nature and should not be relied upon. Before making any investment of financial planning decisions, you should consult a licensed professional who can advise you whether the decision is appropriate for you. Contributors to this show may have commercial or financial interests in the companies mentioned.