Goldman recommends long global cyclicals, short expensive defensives as it sees the cyclical recovery gathering momentum in 2013.
In Goldman Sachs' outlook for 2013, titled ‘Passing the growth Baton’, the broker explains it’s expecting global GDP growth of 3.3 per cent, well below its global potential GDP growth of 4.25 per cent. Within this, the broker sees Australia growing at a real rate of 3.5 per cent in 2012 and 2.7 per cent in 2013.
"Next year, the key policy issue is what policy settings are required to generate recovery in the non-mining economy as the mining related sectors begin to drag on growth through 2013-2014. An RBA cash rate of 2.5 per cent and the Australian dollar well below parity will be required to push the non-mining economy from its current tepid pace towards a 4 per cent year-on-year pace by 2014”, Goldman says.
Against this backdrop, the broker’s view on the S&P/ASX 200 is cautious in the short term before becoming more constructive in 2013. In 2013, Goldman expects a 14 per cent total return which comprises 7 per cent EPS growth, 5 per cent yield and cyclical P/E expansion. Using its framework of marrying macro and micro inputs to determine equity sector exposures, Goldman remains long global cyclicals, short expensive defensives, with a bias to add more cyclical exposure as more evidence of a global recovery appears.
Against this it likes overweight positions among building materials names (Boral and Fletcher Building), diversified financials (Henderson Group, Challenger & Suncorp Group), materials (Orica, Incitec Pivot, Amcor), transport (Asciano, Toll Holdings, Brambles) and resources (BHP Billiton).
"High cash balances, record low deposit rates, and our improved outlook for growth suggest a pick-up in investing," it notes. "M&A will help firms to quickly address recent under-investment in growth. We also expect investors will rotate from defensive high yield into firms that offer income plus growth. Our basket of ‘quality dividend growers’ trades on a 6.1 per cent yield, with 10 per cent per annum 3-year dividend per share growth.”