MARKETS SPECTATOR: Benchmark bulls
UBS has upgraded its end-of-year S&P/ASX 200 target following an easing in global tail-risks and a moderately better cyclical picture. It lifted its target price to 5000 from 4800, which represents approximately 4.5 per cent upside from current market levels.
The upgraded target price is based on an end of year price to earnings ratio of 13.5 times, which based on history is far from demanding. At those levels, stocks would still represent excellent value when compared to interest rates, although UBS does note that earnings and economic growth prospects are likely to be lower than the past 10-20 years.
"We remain overweight mining based on our view of cyclically recovering commodity demand. We are overweight energy based on valuation grounds and our view that the oil price has scope for a degree of cyclical pick up," UBS said in a note.
"We are underweight banks based on our view of the sector's limited capacity for further re-rating given a sluggish credit growth backdrop and relatively slim bad and doubtful debt provisions. We are underweight REITs due to relatively full valuations and the improving cyclical outlook for the global economy. Among Industrials, we continue to tilt towards value alongside some quality growth at reasonable price exposures.”
In stock specific moves, the broker has added Fortescue Metals Group, Macquarie Group, Henderson Group and Trade ME to its model portfolio, while removing Commonwealth Bank and JB Hi-Fi.