In May this year, we outlined the bullish case for emerging market equities (EM). In this week’s asset allocation view we check in on our positive view and outline the factors behind our overweight position:

News of early phase 3 vaccine trial results from both Pfizer and Moderna have, for the first time in 9 months, given the market a visible path out of COVID-19 lockdowns and economic dislocation. While this is undeniably good news from both a health and economic perspective, investors across different sectors in the Australian market have wildly different views around when a vaccine will become effective from an earnings perspective. This week we take a look into the market’s assumptions around the speed of the recovery across different sectors and share how Wilsons is thinking about playing the earnings recovery. We look at:

The outperformance of the US equity market has been a significant and persistent trend for much of the past 10 years. US outperformance is intricately linked to the outperformance of growth over value stocks, or in sector terms, the dominance of the US technology sector over the rest of the global equity market. In this week’s macroeconomic review we discuss:

The list of ingredients needed for cyclical recovery continues to build. This month we have further rotated the Wilsons Australian Equity Focus List towards cyclical recovery beneficiaries which now comprise 60% of the Focus List, up from 45% in September. New developments in the COVID-19 vaccine race this week further support this case. In our November Australian Equities report we:

The backdrop for the Australian equity market is getting incrementally more positive as the market attempts to break out of its range trading pattern of the past 5 months. We upgraded Australia to overweight versus global equities in mid-October, and support for the local market looks to have built over the past few weeks.

As we approach the halfway mark of the Australian AGM season, at this stage, the season is proving no threat to the improving earnings trend that first began to emerge in September. Updates on corporate profitability and trading conditions have led to small positive revisions to market earnings estimates, and positive earnings revisions are outnumbering downgrades 12:1.

Conviction Insights represents our highest conviction calls from across our coverage universe. This month we add United Malt (UMG) to our Conviction Insights lineup. A large commercial malt producer with processing plants in North America, Australia and the UK, our inclusion of UMG and our overweight recommendation rests on a number of factors:

The RBA has stepped up its dovish rhetoric over the past few weeks in a series of speeches from key personnel including Governor Philip Lowe.