Equity Engineer – December 2015 | Christmas rally – chase yield, market will

Market view: We maintain a bullish long term view on the Australian equity market with 12 month index target level of 6100. The RBA move in February and May, and the housing bubble with banks pushing up rates out of cycle, has made equities the preferred risk/return option for investors wanting better than bond yield return in a rising cost environment. Recent profit taking by global investors on currency worries has brought the market below yield adjusted fair value level of 5250. We maintain our positive long term view on the yield trade (i.e. Banks, Div Financials and Telecommunication services) while Health Care looks the best growth/currency pick. We continue to favour the new economy (i.e. MITCH Universe – Media, Information, Telecom, Consumer and Health) over the old economy on the long term view. We are experiencing short term profit taking with US Fed interest rate cycle and domestic property bubble worries but the long term low growth outlook will deliver higher equity prices due to the high dividend yield. (VIEW LINK)