Analysts split on winners, losers, investment strategy

Equity strategists are divided on where the money will flow and how portfolios should be reshaped.

Equities rallied yesterday despite most marketwatchers tipping swift and deep falls if Donald Trump won.

As investors frantically adjust to Donald Trump’s US election victory, equity strategists are divided on where the money will flow and how portfolios should be reshaped.

Global equities rallied strongly on Thursday despite most marketwatchers tipping swift and deep falls if Mr Trump was handed the White House. The S&P/ASX 200 followed Wall Street to bounce 3.3 per cent and close at the day’s high of 5328.8 points.

The rally ranks as the best one-day gain on the ASX 200 in five years.

BHP Billiton burst higher with an initial 9.2 per cent surge before cooling off to end the day 8.3 per cent above Wednesday’s close at $24.42, and that meaty bounce from the world’s biggest miner could be a sign of future outperformance, according to Credit ­Suisse.

“In the near term, we expect the risk-off environment to be relatively positive for cash-generative companies,” Credit Suisse equity strategist Hasan Tevfik said.

His top picks in the Australian market include BHP Billiton, Boral and Vocus Communications but in the medium term he said investors should position for a more inflationary environment and be wary of “highly valued, highly leveraged bond proxies”.

A surge in bond yields since ­August has unleashed a “bond­cano” weighing on “defensive yield” stocks such as Transurban, Sydney Airport, Westfield and Telstra, and Mr Tevfik said Mr Trump’s victory “will accelerate the end of the yield trade” in Australia.

While Mr Tevfik said markets would remain in “risk-off mode” until Mr Trump’s leadership style became clearer, he saw Rio Tinto, South32 and Whitehaven Coal as cashflow “diamonds in the dust”.

Bell Potter’s Richard Copple­son said fund managers were putting their cash piles to work in the market now that a clear election outcome had been achieved.

“The US will be the place to be and Aussie companies that are leveraged to the US will be the ones to own going forward,” Mr Copple­son said, listing James Hardie, Aristocrat Leisure, Amcor, Brambles, Incitec Pivot, Treasury Wine Estates, Macquarie and Lend Lease as his preferred options.

Elsewhere, Deutsche Bank equity strategist Tim Baker said Australian stocks would fall another 5 per cent as uncertainty around Mr Trump’s policy plans became a headwind for investors. “Such a sell-off would take the (ASX 200 price to earnings multiple) to 14.5 times — 10 per cent below our fair value model,” he said.

And while Credit Suisse said major miners like BHP and Rio Tinto would perform well under the new US regime, Deutsche Bank took the opposing view and said risk aversion would boost the US dollar, weighing on commodity prices and resource stocks.

Mr Tevfik said Mr Trump’s victory would accelerate the end of the yield trade and Mr Baker said commodities would provide safety amid the volatility.

“Gold and yield exposure seem the best place to hide near term,” Mr Baker said.

In the gold sector, his firm had buy ratings on Evolution, Alacer and Dacian, and yield stocks rated buy at Deutsche Bank included Sydney Airport, Macquarie Atlas, and APA Group.