Transcription of Finance News Network interview with UBS Investment Bank Chief Economist Australasia, Scott Haslem Lelde Smits: Hello, I’m Lelde Smits for the Finance News Network and joining me from investment bank UBS is its Chief Economist, Scott Haslem. Scott, welcome to FNN.
Scott Haslem: Thank You.
Lelde Smits: When we last spoke a year ago you said you UBS is overweight Australian equities. How has your exposure changed since?
Scott Haslem: Well, after a very good year and a global economy that is starting to look moderately better, we now think Australia is a little bit underweight in an Asian context and in a global context. We still think you'll see the market go higher here but we’re not expecting as much performance from Australia as we might expect in some of the other markets offshore.
Lelde Smits: The S&P/ASX 200 index jumped 15 per cent over last year. What's your forecast for the benchmark index this year?
Scott Haslem: We're looking for the ASX to get towards about 5,700. So, that's capital growth of around 7/7.5 per cent from where we are. So that's a little less than we have seen in previous years, but certainly a reasonable performance.
Lelde Smits: In your view which sectors have performed well and where are you seeing future growth?
Scott Haslem: Well, our equity strategists are looking to be a little bit overweight the mining sector and a little bit underweight in the banking area. We have a tilt towards the domestic part of our economy where we think lower interest rates are having quite a positive impact on the housing impacted parts of our economy. We also so like GARPy type stocks, so Growth At a Reasonable Price, particularly health care and those sorts of areas in the domestic economy.
Lelde Smits: The mining sector has come off steeply as commodity prices continue to stumble but you say UBS is overweight miners, why is that?
Scott Haslem: Well, we have a moderate view on China in the sense that we think it is slowing but not tremendously, so growth around 7 to 7.5 (per cent) over the coming couple of years. Within that, we also think that China is becoming less commodity intensive. So, that is going to have some downward pressure on commodity prices relative to where they have been over the last few years. But, despite that we think valuations are very attractive in mining. Our strategists think the market will eventually start to value the free cash flow that you are going to see from the mining companies as they return capital to investors and maintain a fairly subdued CAPEX outlook.
Lelde Smits: And Scott, is there anything in particular which is looking attractive to you, grabbing your attention or looking particularly undervalued?
Scott Haslem: No, we like the big miners because we thing you get diversification there without the risks associated with some of the smaller, single stock commodities.
Lelde Smits: To the commodities in more detail - The price of gold plunged almost 30 per cent last year. Are you bullish or bearish about this safe haven asset?
Scott Haslem: Well gold is, at least for an economist, gold is an asset class of extremes. It's something you want to own if you think the world is booming and you want an inflation hedge. It's something you want to own if you think the global economy is going through a very difficult financial crisis and governments are debasing currencies. Neither of those seems to be the environment we see going forward, so we're not particularly excited about gold.
Lelde Smits: And Scott, overall which commodities do you believe are positioned for the biggest price gains or falls?
Scott Haslem: Well overall, the commodity complex, we think, is probably coming down. In terms we think the commodity boom is over. We think generally commodity prices are going to drift lower over the next couple of years. Our commodity strategists do think iron ore has the potential to pick up quite a bit through the second quarter of this year. That's a typical seasonal restocking period for iron ore. They're looking for the iron ore price, which is now down at $US110, to maybe get up as high as $US130, $US140 through the second quarter. But the general feel on commodities we think is one of moderating commodity prices.
Lelde Smits: How does your outlook for the mining sector compare to the energy sector?
Scott Haslem: We are also quite upbeat on the energy sector. We think that project delivery there is quite good. So, there is a number of companies within the energy sector which will do quite well.
Lelde Smits: Finally Scott, what are the key risks to Australia’s economic prospects that you’ll be keeping an eye out on this year?
Scott Haslem: Well, I think in the short term if we are talking about this year, I think most of those rest either in China or in terms of global political/war type events. I think they're the things that potentially could lead us to look back at the end of this year and find that we haven't quite met our targets in terms of risk assets. China is particularly one of things slowing down a little bit more than anticipated or having more problems in the shadow banking or the MPL environment than we're anticipating. Those type of risks we don't think are going to lead to global systemic problems but they may well hamper the market's ability to move materially forward.
Lelde Smits: Scott Haslem, thank you for your outlook today.
Scott Haslem: Thank you.
Ends
