Markets: Picking and choosing

Fund manager Alliance Bernstein doesn’t like the banks, is wary of mining stocks and in favour of consumer cyclicals.

Australia’s stock market doesn’t offer great value except among stocks that garner their revenue from consumer spending, but the Reserve Bank of Australia’s easy monetary policy stance will rekindle the economy, says Stuart Rae the Asia chief investment officer of fund manager Alliance Bernstein.

The Reserve Bank's lowering of of the cash rate to a historic record 2.75 per cent is supportive of companies and the stock market but the broad market is hardly cheap, says Rae.

He’s not a fan of the shares of the four biggest banks or many mining shares. Rae says investors should be selective as to what resource stocks they buy.

The Hong Kong-based CIO says mining companies face more a question of supply than demand as commodity output is increasing as new mines open, notably those in the iron ore region of Western Australia’s Pilbara region. Such increase in output comes as Chinese industrial production slows to a growth rate of about 5 per cent this year, more than half the rate of past years.

Alliance Bernstein expects Chinese steel production to rise 3 per cent this year.

“Our interpretation of Chinese data is that we are seeing a tightening and gentle slowdown but not a hard landing or collapse,” says Rae. “The authorities are showing a willingness to take tough decisions in housing and financials.”

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