Value opportunities in low growth environment

There are plenty of attractively valued shares in the Australian market right now in spite of the fact that we are headed for a lower growth environment coming out of the global financial crisis, according to Fidelity’s head of Australian equities, Paul Taylor.

Elevated debt levels in Europe and the US could lead to higher taxation and lower spending, which could lead to a lower growth world and impact on Australia as a small open economy. Despite this, a double dip recession is unlikely because big companies have already cut costs and balance sheets are strong, meaning they are unlikely to further cut jobs, Taylor said.

Once the market becomes comfortable that there won’t be a double dip recession the recovery phase will resume, and there is still plenty of upside left in that recovery, he said.

The Australian market is attractively valued, although investors still needed to be stock selective, and a tight range of valuation multiples across the board means that shares with both higher and lower growth and quality are trading at similar valuation multiples. This creates opportunities for selective stock pickers, Taylor said.

“Today it’s all going to be about the top line growth,” he said.

“To get that top line growth we are really looking for companies that can increase their market penetration through a new product, through a new service. It could also be store roll out programs.”

Structural growth could also come from new technologies such as the iPad and 3D television, which have been popular recently despite a subdued retail environment, he said.

Fidelity’s portfolio is currently positioned for sectors and companies that offer the best structural growth opportunities, which at the industry level means sectors like healthcare, industrials and consumer goods, while at the individual stock level companies like Rio Tinto, Wesfarmers, Commonwealth Bank, SEEK and Oil Search offer the best structural growth, he said.