Quarterly Portfolio Review
Too early to look at
weak industrial stocks
Portfolio and Sector Review
This is our quarterly portfolio review,
examining in detail the outlook for
industry sectors and major stocks. It
provides an overview of our portfolio
strategy, including changes, as well as
recent performance and current
valuations across sectors
It's still not clear how much company earnings will decline
Tony Brennan
Strategist
(61) 2 8258 1630
tony.brennan@db.com
Tim Baker
Research Analyst
(61) 2 8258 1376
timothy.baker@db.com
Deutsche Bank AG/Sydney
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from
local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
Independent, third-party research (IR) on certain companies covered by DBSI's research is available to customers of
DBSI in the United States at no cost. Customers can access this IR at http://gm.db.com, or call 1-877-208-6300 to
request that a copy of the IR be sent to them.
DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1
Contents
Page
Model portfolio 2
Portfolio changes 3
Sector strategy 4
Stock positions 5
Strategy overview 6
Sector overviews
Energy 12
Mining 14
Steel 16
Building materials 18
Other materials 20
Transport 22
Gaming & wagering 24
Media 26
Retailing 28
Food & beverage 30
Healthcare 32
Banks 34
General Insurance 36
Other financials 38
Property 40
Infrastructure 42
Telecommunications 44
Sector performance 46
Global Markets Research Company
􀂄 Although this bear market in equities has carried on for over six months, we
think equity portfolios should continue to be cautiously structured. During the
decline in the market many industrial stocks have fallen sharply, raising the
possibility that there might be value there now. However, our concern is that,
while many stocks now appear priced for a significant decline in company
earnings, we don’t yet know the full extent of the deterioration that is in store.
In particular, financial conditions remain abnormal and economic growth is
now clearly slowing both in Australia and globally, reasons to be cautious.
􀂄 Our advice is to remain focused on stocks that may not offer as much obvious
value, but have less uncertainty about earnings. Hence, we continue to
suggest above index positions in the healthcare, telecoms, food retailing, and
beverage manufacturing sectors, while still recommending below index
positions in general retailing, gaming, media, and wealth management. Even if
there are pockets of value in some of these latter sectors, share prices are
unlikely to recover until potential declines in earnings are acknowledged by
companies and analysts, which hasn’t been widespread to date.
􀂄 Outside the half of the market industrials comprise, we’re also still cautious.
With the resource stocks, the surprise for us has been the continued strength,
although as we’ve noted recently, we have doubts about its sustainability. The
global economy is slowing, seemingly to a rate of growth that one wouldn’t
expect to continue to drive commodity prices higher, and over time we think
that will contain the resource stocks, though there is the potential for
investment flows to drive commodity prices counter to fundamentals for a
while, as we saw in the tech boom. On the Australian banks, while some of
the concerns earlier in the credit crisis over funding and margins have eased,
the unknown is still the potential deterioration in loan performance.
􀂄 Our thoughts on these broad sectors of the market are expanded upon inside
the report, especially on pages 6-9. Our recommended portfolio is on page 2.