August 3, 2014
AUSTRALIAN STRATEGY & ECONOMICS
MORGAN STANLEY RESEARCH
Asia/Pacific
Australia Macro+
“The Monthly”
Morgan Stanley Australia Limited+
Chris Nicol
Chris.Nicol@morganstanley.com
+61 (3) 9256 8909
August Reporting Season is upon us…
We have a total of 149 companies reporting results through August with focus on early bellwethers including RIO (7th),
JBH (11th) and CBA (13th), before a flood of releases in the weeks of the 18th and 25th. Heading into results, FY15 earnings
have been cut by a further 4% (largely in the resources sector), bringing forecast growth down to 6.6%.
We provide a reporting season calendar and snapshot for companies under our coverage. Estimates for the FY and
respective interim period are included along with a brief analyst comment on company guidance and issues to look for.
Number of companies reporting by date
tba
28-Aug
26-Aug
22-Aug
tba
28-Aug
26-Aug
22-Aug
20-Aug
18-Aug
14-Aug
12-Aug
08-Aug
0
20-Aug
2
18-Aug
4
14-Aug
6
12-Aug
8
08-Aug
10
05-Aug
12
21-Jul
14
Steven Ye
+61 (2) 9770 1513
200
180
160
140
120
100
80
60
40
20
0
16
Antony.Conte@morganstanley.com
+61 (2) 9770 1544
Steven.Ye@morganstanley.com
Total market cap (A$bn) reporting by date
18
05-Aug
Daniel.Blake@morganstanley.com
+61 (2) 9770 1579
Antony Conte
In this edition of “The Monthly”...
21-Jul
Daniel Blake
Source: Company Data, Modelware, Morgan Stanley Research
Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making
their investment decision.
For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.
+= Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject
company, public appearances and trading securities held by a research analyst account.
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Table of Contents
1.
Market & Economic Overview
2.
Market Performance & Attribution
10
3.
Earnings and Valuations
21
4.
Breadth & Size Dynamics
35
5.
Technicals & Positioning
41
6.
Global Equity Markets
46
7.
Australian Economic Indicators
49
8.
Macro+ Strategy Views, Model Portfolio & Focus List
58
9.
Morgan Stanley Australian & Global Economic Forecasts
65
10. August 2014 Reporting Season Calendar
3
74
2
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
July 2014 Market Summary
Performance – July 2014
•
Heading into reporting season the market pushed to post-GFC highs, returning 4.4% TR for July, closing at 5632.9 pts. Performance was led by the
resources sector jumping out of the blocks, outperforming the market by 237bps to start the new fiscal year. Midcap resources performed best,
returning 14% TR for the month, as smalls beat large caps.
•
All sectors made a positive contribution to the overall market return for the month of July. Materials (+131 bps), Banks (+112 bps), Food & Staples
Retailing (+37 bps) and Real Estate (+34 bps) added the most value.
•
Strong returns from the resources space in July has wiped the slate clean of any previous losses CYTD. The Materials sector (+72 bps) has jumped
from detracting the most value at the end of the previous month to being the second-largest contributor to CYTD performance at the end of July.
Materials were not alone, with Info Tech (+9 bps), Health Care (+10 bps) and Discretionary (+12 bps) sectors all adding value CYTD after previous
losses at June month-end.
•
At company level, BHP (+68 bps), NAB (+45 bps), CBA (+35 bps), TLS (+26 bps) and RIO (+23 bps) added the most value for the month.
Performance loss was minimal with only NVT (-5 bps) detracting any significant value of note.
Earnings and Valuations at month close
•
Materials sector consensus aggregate EPS expectations for FY15 continued to trend lower, falling a further 4% on previous months levels, with
earnings growth expectations for FY15 having turned negative (-2.2%). Overall, the market has dropped from previous months level of 7.1% to
6.6% earnings growth for FY15.
•
Multiples expanded… valuations continue to look stretched, on the back of strong monthly returns and weaker earnings forecasts the market
multiple has expanded to be trading at ~15x. Industrials x Financials at month-end trading is trading at 17.7x, approx. a std dev above LT average.
•
Number of estimate changes over the past month have been skewed to the material sector as quarterly results continue to be washed through into
consensus estimates prior to reporting season. Materials and Utilities are the main drivers to weakness in earnings over the past month.
Factor Performance in July
•
Factor performance was driven by the resources sector with low valuations across Price to Earnings (P/E), Price to Book (P/B) and Dividend Yield
(D/P) the main contributors to performance. P/E and P/B were the best-performing factors in July, with each factor returning 4.1% (spread between
the top and bottom quintiles).
•
Momentum factors were mixed with long-term (12 month) price momentum, which outperformed short-term (3 mth) momentum, suggesting the
market looked to beaten up names short-term, but past winners over the longer term.
* ERR = the number if up estimates less the number of down estimates divided by the total number of estimates.
3
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Rolling forward ASX 200 target to 5,800 by 2Q15
Our 12-month forward ASX 200 target stands at 5,800 for 2Q15,
which implies 9% total returns over the next 12 months. Our base
case for earnings is 5% below an already depressed IBES
consensus for FY15, and a further 2% below in FY16. Our FV
multiple stands at 14.4x, half a turn below the current 15.0x.
12 mth fwd earnings and targets for ASX 200
Bear
Base
Bull
Weighted
357
-4%
404
9%
439
19%
402
8%
12m-fw d PE
12m-fw d target
11.9
4,200
14.5
5,900
16.3
7,200
14.4
5,800
Base Case (60% Probability)
Capital gains
Total return
-23%
-19%
8%
12%
31%
36%
6%
10%
ASX 200 Metrics Target: 5,900; 9% EPS grow th, 14.5x PE
Probability
20%
60%
20%
Weighted Index Target and Outlook
ASX 200 Metrics Target: 5,800; 8% EPS grow th, 14.4x PE
Investm ent
Case
We expect a modest upgrade cycle from consensus 7%
earnings grow th, given early-cycle cost out and operational
leverage from pockets of top-line grow th under our East
Coast Recovery thesis.
Stocks to Watch LLC, MQG, CSR, BXB, WOR
Bull Case (20% Probability)
ASX 200 Metrics Target: 7,200; 19% EPS grow th, 16.3x PE
Investm ent
Case
A broad-based non-mining recovery combined w ith stronger
resource export volumes delivers above-trend GDP and 19%
EPS grow th (a net upgrade of 11%).
Stocks to Watch WES, JBH, AIO, BLD, ARI
Bear Case (20% Probability)
ASX 200 Metrics Target: 4,200; -4% EPS grow th, 11.9x PE
Investm ent
Case
12m-fw d EPS
EPS grow th*
A deeper China slow dow n and a faltering grow th transition
domestically impacts earnings. Multiples de-rate as
policymakers explore macro-prudential policies to insulate the
housing market from further rate cuts.
Stocks to Watch IVC, TAH, WOW, CSL, SAI
Morgan Stanley Macro+ 12 mth fwd ASX 200 target 5,800
8,000
Index
7,200
7,000
6,000
5,900
5,800
5,000
4,200
4,000
3,000
2,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Bull/bear case
ASX 200
Base case
Probability-w eighted
Source: Bloomberg, IBES, Morgan Stanley Research
4
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Macro Matters – Charts of the Month
Taking Stock of FY14
%
Frankly Speaking - who has the most Credits?
A$bn (FX conversion at report date)
12
FY14: Macro+ Sector Perform ance
25
% ASX 200 FF Mkt Cap
ASX 300: Top 15 by FY13 Frank ing
Balance
25%
10
20
8
15
6
20%
15%
10%
4
10
5%
2
5
0
0%
BHP
0
RIO
WPL
WOW
CTX
FY11 Franking Credit Balance
A$bn (FX conversion at report date)
2.0
-5
NAB
STO
FY12
CBA
FY13
HVN
FMG
WBC
SUN
IAG
AWC
TAH
FY13 Franking Credit Balance as % Mkt Cap (rhs)
% ASX 200 FF Mkt Cap
ASX 300 Indus trials ex Banks : Top
15 by FY13 Franking Balance
25%
Div Financials
Housing Linked
Banks
Energy
Health Care
Insurance
Metals & Mining
5%
Telcos, IT,
Utilities
10%
0.4
Cons. NonStaples
15%
0.8
Indus./Transport
1.2
Real Estate
20%
-15
Capital Goods
1.6
Cons. Staples
-10
0%
0.0
WOW
HVN
SUN
IAG
TAH
TCL
MQG
TLS
FY11 Franking Credit Balance
Sell Side Earnings Estimates - Over Promise, Under Deliver?
QBE
RHC
FY12
FY13
WES
FLT
PMV
AIO
AMP
Series5
The Magnificent 7 - Can High PEs Do it Again this Season?
15%
Average Outperformance vs ASX 200 during Reporting Season (6 Weeks
starting February and August)
12%
14%
10.6%
10.1%
13%
10%
9.0%
9.5%
12%
8%
11%
6.4%
10%
6.7%
6%
9%
8%
FY14, 7.4 %
4%
2.6%
7%
2%
6%
1.5%
FY15, 6.6 %
0%
5%
Aug
Sep
Oct
Nov
Dec
Prospective Year
Jan
Feb
FY14
Mar
Apr
May
FY15
Jun
Jul
Top Decile
High PE
Stocks*
RHC
NVT
MFG
CRZ
SEK
REA
DMP
Source: Company Data, IBES, Bloomberg, Morgan Stanley Research
5
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
ASX 200 Valuations and Earnings estimates
Long-term Forward Price to Earnings – trading at 15.0x
12 mth fw d (x)
FY15 consensus EPS – Materials down by further 4% over month
120
20
18
110
16
100
14
90
12
80
10
Index=100, Aug 2012
Telcos
Health Care
Financials
Info Tech
Discretionary
Energy
Staples
Market
Utilities
70
8
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
PE
avg
60
Aug-12
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
ASX 200 FY2 revisions ratio – materials accounted for ~75% of the
net downgrades
200
3.0
100
2.5
0
2.0
-100
1.5
-200
1.0
-300
0.5
-400
00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11 11 12 12 13 13 14
Net Up/dow ngrades
Nov-12
+/-1 std
ASX 200 FY2 net revisions – materials and utilities the largest
contributors to net downgrades
Source: RIMES, IBES, Morgan Stanley Research
Industrials
Materials
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Up/dow ngrades Ratio
12m avg
6
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
August Reporting Season Calendar for Morgan Stanley Stock Coverage
•
Only companies covered by Morgan Stanley are included in this reporting season calendar
•
Reporting dates are indicative only and provided to the best of our knowledge
•
PCP refers to previous corresponding period. We have included FY estimates and respective interim estimates for the period
reporting
•
All Morgan Stanley estimates (MSe) are as of August 1, 2014. Price as at close of trade July 31, 2014
•
Clink on link to published report 2014 August Reporting Season Calendar
Source: Company Data, Modelware, Morgan Stanley Research
7
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Reporting season - Morgan Stanley recommendation and price targets - by date
For valuation methodology and risks associated with any price targets above, please email morganstanley.research@morganstanley.com with a request for valuation methodology and
risks on a particular stock. Price as at close of trade 24/07/2014.
8
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Reporting season – Morgan Stanley recommendation and price targets – by ticker
For valuation methodology and risks associated with any price targets above, please email morganstanley.research@morganstanley.com with a request for valuation methodology and
risks on a particular stock. Price as at close of trade 24/07/2014.
9
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Market Performance and Attribution
10
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Performance for the Month of July 2014
Sector performance: Staples, Telcos, Tech and Materials all
outperformed the broader market
MTD (%)
3M (%)
Income contribution to overall market total return. Median
historical income return is 4.4%
YTD (%)
16%
2.2 
3.8  
9.4  
Health Care
2.7 
1.9  
2.5 
Financials
3.8 
4.2 
Industrials
3.8 
3.7  
7.4 
Discretionary
4.0 
0.9 
2.9 
Staples
4.6 
1.8 
4.0 
7.7 
3.0 
10%
4%
7%
2%
7.6 
3%
2%
5%
5%
8%
14.3 
4.0 
Price return
Performance distribution in July - positively skewed
2%
2%
2%
2%
2%
0%
Energy
Materials
6%
2%
13%
Financials
6.3 
3%
Utilities
4.9 
6.3 
10%
Info Tech
5.2 
Technology
3%
8%
10.1 
Telcos
1%
12%
2%
1%
1%
1%
5%
S&P/ASX
200
Energy
13.4 
Health Care
4.4 
Discretionary
0.7  
14%
Materials
Utilities
7.6 
Staples
3.5 

Industrials
4.4 

Telcos
Market
Income return
Volatility – number of days with returns of +/- 1%
20
80
71
18
70
16
56
60
14
12
50
10
40
8
27
30
6
20
4
20
10
10
4
5
< -10
-10 to -5
7
2
0
Jun-08
0
-5 to 0
0 to 5
5 to 10
Source: RIMES, IBES, Morgan Stanley Research
10 to 15
15 to 20
>20
Jun-09
Jun-10
Jun-11
No. of > +1% days
Jun-12
Jun-13
Jun-14
No. of < -1% days
11
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Australian Equity Market Performance for July 2014
Absolute Pric e Performanc e (%)
1-Mo
3-Mo
6-Mo
Absolute Total Return (%)
9-Mo
12-Mo
YTD
1-Mo
3-Mo
6-Mo
9-Mo
12-Mo
YTD
Size Indic es
All Ordinaries
5623.1
4.48
2.79
8.03
3.74
11.67
5.04
4.49
3.64
10.34
6.79
16.56
7.30
S&P/ASX Small Ordinaries
2234.6
4.84
3.42
4.79
-1.36
4.71
1.87
4.91
3.83
6.39
0.55
8.07
3.45
S&P/ASX 20
3548.8
4.43
2.21
8.83
3.66
11.10
5.04
4.43
3.15
11.33
6.96
16.32
7.46
S&P/ASX 50
5804.7
4.35
2.48
8.29
3.52
11.15
5.03
4.35
3.47
10.78
6.83
16.35
7.43
S&P/ASX 100
4684.7
4.37
2.59
8.66
4.11
11.85
5.39
4.37
3.54
11.11
7.37
16.99
7.76
S&P/ASX 200
5632.9
4.40
2.62
8.53
3.82
11.50
5.24
4.40
3.54
10.93
7.00
16.54
7.57
S&P/ASX 300
5575.1
4.40
2.66
8.34
3.67
11.28
5.09
4.41
3.57
10.72
6.82
16.27
7.40
S&P/ASX MidCap 50
4721.2
4.55
3.63
11.90
9.36
18.17
8.54
4.57
4.23
13.96
12.06
22.61
10.54
2347.0
4.01
1.57
3.78
-1.41
6.44
0.46
4.09
2.08
5.71
0.91
10.60
2.36
Mac ro Indic es
S&P/ASX Small Industrials
S&P/ASX Small Resources
2337.6
8.06
11.13
8.79
-1.76
-2.19
7.59
8.06
11.13
9.08
-1.50
-1.63
7.87
S&P/ASX 100 Industrials
4712.6
3.81
2.48
9.24
4.39
11.97
5.96
3.82
3.67
11.86
8.05
17.49
8.50
S&P/ASX 100 Resources
6174.1
6.62
3.01
6.43
3.01
11.33
3.18
6.62
3.01
8.17
4.69
14.99
4.87
S&P/ASX 200 Industrials
8651.7
3.81
2.39
8.98
4.04
11.68
5.68
3.82
3.53
11.56
7.63
17.13
8.19
S&P/ASX 200 Resources
4333.5
6.77
3.52
6.77
2.93
10.73
3.52
6.77
3.52
8.44
4.54
14.22
5.13
S&P/ASX 300 Industrials
8532.7
3.83
2.41
8.79
3.91
11.51
5.50
3.84
3.55
11.35
7.47
16.92
7.99
S&P/ASX 300 Resources
4308.8
6.73
3.61
6.61
2.72
10.34
3.51
6.73
3.61
8.24
4.29
13.73
5.09
S&P/ASX MidCap 50
4721.2
4.55
3.63
11.90
9.36
18.17
8.54
4.57
4.23
13.96
12.06
22.61
10.54
S&P/ASX MidCap 50 Industrials
4793.5
3.40
3.73
12.05
8.48
18.57
8.51
3.42
4.41
14.29
11.46
23.40
10.68
S&P/ASX MidCap 50 Resources
3567.1
14.00
3.87
12.09
15.72
17.59
9.81
14.00
3.87
12.93
16.59
19.76
10.63
S&P/ASX 200 A-REIT
1122.8
4.97
5.66
13.50
7.39
9.93
14.00
5.00
8.56
17.81
13.56
17.54
18.36
S&P/ASX 200 FINANCIAL-x-A-REIT
7412.6
3.56
1.91
11.36
3.73
12.80
6.17
3.56
3.46
14.16
7.98
18.73
8.85
Source: RIMES, Morgan Stanley Research
12
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Industry Group Relative Total Return Performance for July 2014
Relative Total Return Performanc e (%)
ASX 200 GICS Industry Group 1m relative total return performance
ASX200
S&P/ASX 200
4.4
Consumer D&A
Consumer Discretionary
3.3
Capital Goods
Consumer Staples
2.8
Softw are & Services
1.9
Retailing
1.7
Telcos
0.8
F&S Retailing
0.8
Real Estate
0.5
Insurance
-0.7
Banks
-0.8
Media
-0.8
6-Mo
12-Mo
Y TD
4.4
3.5
10.9
16.5
7.6
-0.4
-2.6
-3.2
-1.3
-4.7
0.2
-1.8
-3.6
-7.1
-3.5
1.8
Energy
-2.2
0.3
2.6
-2.4
Financials
-0.6
0.6
3.7
2.0
2.6
Health Care
-1.7
-1.7
-8.8
-7.2
-5.1
Industrials
-0.2
-0.6
0.1
-1.3
3.0
Information Technology
1.9
2.8
6.4
10.1
6.8
Materials
3.3
-0.5
-4.9
-0.2
-3.6
0.8
1.4
-1.2
0.5
0.0
-3.7
0.8
1.5
-0.7
5.9
Telecommunication Services
Utilities
Industry Group
0.1
Transportation
3-Mo
Sec tors
15.5
Materials
1-Mo
Energy
Materials
Capital Goods
-2.2
0.3
2.6
-2.4
1.8
3.3
-0.5
-4.9
-0.2
-3.6
2.8
-1.0
-2.7
-4.4
-7.3
Commercials & Professional Services
-1.2
-2.1
-1.4
8.0
-2.3
Transportation
-0.7
1.9
-1.0
1.1
2.9
Consumer Durables & Apparel
15.5
35.9
11.6
1.8
25.9
HC Equip & Services
-1.0
Consumer Services
-1.4
-1.5
0.4
6.3
1.5
Professional Services
-1.2
Media
-0.8
-4.3
-9.7
-3.6
-10.9
-10.6
Consumer Services
-1.4
Retailing
1.7
-5.0
-3.4
-13.4
Food & Staples Retailing
0.8
-2.3
-2.6
-3.0
-1.7
3.1
-11.2
-33.5
-17.0
Energy
-2.2
Food Beverage & Tobacco
-4.6
Health Care Equipment & Services
-1.0
1.5
-1.3
1.5
-0.3
Pharma Biotech & LS
-2.4
Pharmaceuticals Biotechnology & Life Sciences
-2.4
-4.1
-14.1
-13.3
-8.8
Banks
-0.8
-0.4
3.2
2.9
0.9
Diversified Financials
-2.8
0.0
-1.4
16.5
-0.1
Diversified Financials
Utilities
-2.8
-3.8
Auto & Comp
-4.4
Food B&T
-4.6
-10.0
-5.0
0.0
Source: Bloomberg, Morgan Stanley Research
5.0
10.0
15.0
20.0
Insurance
0.1
2.1
4.9
-13.1
3.6
Real Estate
0.5
4.7
7.7
3.2
11.2
6.8
Software & Services
1.9
2.8
6.4
10.1
Telecommunication Services
0.8
1.4
-1.2
0.5
0.0
-3.7
0.8
1.5
-0.7
5.9
Utilities
13
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Top/Bottom stock contributions by sector for July
Avg Wgt
TR
(%)
(%)
S&P/ASX 200
4.40
CTR Top Contributors
Avg Wgt
TR
(%)
(%)
CTR Bottom Detractors
Avg Wgt
TR
CTR
(%)
(%)
(bps)
4.40
Sec tors
Energy
Materials
6.3
2.17
0.14 Woodside Petroleum
2.18
3.53
17.3
7.74
1.31 BHP Billiton Limited
8.94
7.74
7.7 Origin Energy
67.5 James Hardie Indust
1.16
-1.98
-2.4
0.45
-1.16
-0.5
Industrials
6.8
3.85
0.26 Transurban Group
1.07
5.28
5.7 Als Ltd
0.25
-11.85
-3.1
Consumer Discretionary
4.0
3.98
0.16 Crown Resorts Ltd
0.43
7.61
3.3 Navitas Limited
0.13
-30.43
-5.0
18.8 Coca-Cola Amatil
Consumer Staples
8.0
4.58
0.37 Wesfarmers Limited
3.61
5.21
Health Care
4.5
2.65
0.12 CSL Limited
2.38
1.88
Financials
4.6 Ansell Limited
44.9 Macquarie Group Ltd
0.36
-1.59
-0.6
0.21
-4.03
-0.9
1.41
-1.86
-2.6
0.08
6.96
0.5
45.4
3.76
1.71 National Aust. Bank
5.87
7.75
Information Technology
0.7
6.31
0.05 Computershare Ltd
0.47
5.37
Telecommunications
5.3
5.24
0.27 Telstra Corporation.
4.90
5.37
26.2 Tpg Telecom Limited
0.12
0.18
0.0
Utilities
1.7
0.64
0.01 APA Group
0.44
8.42
3.6 AGL Energy Limited
0.62
-4.52
-2.9
2.5 IRESS Limited
Industry Group
Automobiles & Components
0.1
0.00
0.00 ARB Corporation
0.06
0.00
30.8
3.61
1.12 National Aust. Bank
5.87
7.75
Capital Goods
0.6
7.23
0.04 Leighton Holdings
0.16
12.01
Commercial & Professional Services
2.5
3.21
Consumer Durables & Apparel
0.0
19.94
Consumer Services
2.2
Diversified Financials
Energy
Banks
0.0
44.9 Bank of Queensland.
1.8 Cardno Limited
0.32
2.87
0.9
0.07
-0.32
0.0
-3.1
0.08 Brambles Limited
1.06
2.61
2.8 Als Ltd
0.25
-11.85
0.01 G.U.D. Holdings
0.03
19.94
0.7 G.U.D. Holdings
0.03
19.94
0.7
2.99
0.07 Crown Resorts Ltd
0.43
7.61
3.3 Navitas Limited
0.13
-30.43
-5.0
3.1
1.59
0.05 Challenger Limited
0.30
8.60
2.6 Macquarie Group Ltd
1.41
-1.86
-2.6
6.3
2.17
0.14 Woodside Petroleum
2.18
3.53
7.7 Origin Energy
1.16
-1.98
-2.4
Food & Staples Retailing
7.1
5.19
0.37 Wesfarmers Limited
3.61
5.21
18.8 Metcash Limited
0.17
10.23
1.7
Food Beverage & Tobacco
0.9
-0.17
0.00 GrainCorp Limited
0.11
5.55
0.6 Coca-Cola Amatil
0.36
-1.59
-0.6
Health Care Equipment & Services
2.0
3.39
0.07 Ramsay Health Care
0.44
6.35
2.8 Ansell Limited
0.21
-4.03
-0.9
Insurance
4.6
4.51
0.21 Insurance Australia
1.03
7.88
8.0 Cover-More Grp Ltd
0.04
-3.18
-0.1
Materials
17.3
7.74
1.31 BHP Billiton Limited
8.94
7.74
67.5 James Hardie Indust
0.45
-1.16
-0.5
Media
0.8
3.58
0.03 REA Group
0.16
11.40
1.8 Fairfax Media Ltd
0.14
-4.97
-0.7
Pharmaceuticals Biotechnology & Life Sciences
2.5
2.00
0.05 CSL Limited
2.38
1.88
4.6 Mesoblast Limited
0.06
-4.47
-0.3
Real Estate
7.0
4.88
0.34 Scentre Grp
1.25
6.25
7.7 Charter Hall Group
0.09
1.88
0.2
Retailing
0.9
6.10
0.06 JB Hi-Fi Limited
0.14
8.85
1.2 Trade Me Group
0.05
-2.45
-0.1
Software & Services
0.7
6.31
0.05 Computershare Ltd
0.47
5.37
Telecommunication Services
5.3
5.24
0.27 Telstra Corporation.
4.90
5.37
Transportation
3.7
3.74
0.14 Transurban Group
1.07
5.28
Utilities
1.7
0.64
0.01 APA Group
0.44
8.42
Source: Bloomberg, Morgan Stanley Research
2.5 IRESS Limited
0.08
6.96
0.5
0.12
0.18
0.0
5.7 Mermaid Marine
0.05
-1.46
-0.1
3.6 AGL Energy Limited
0.62
-4.52
-2.9
26.2 Tpg Telecom Limited
14
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
ASX 200 performance attribution for July 2014
Sector contribution to total return
Top / bottom 10 company contribution to total return
500
450
27
37
5
80
440
1
70
60
131
50
250
171
35
26
30
150
100
20
50
10
23
19
17 16
13
8
-1
-1
-1
Energy
Professional
Services
HC Equip &
Services
Consumer
Services
Retailing
Pharma
Biotech & LS
Diversified
Financials
Software &
Services
Capital Goods
Media
Utilities
Consumer
D&A
Auto & Comp
Food B&T
ASX200
IAG
JHX
ANZ
WOW
WES
WBC
RIO
TLS
CBA
BHP
-3
-3
-5
NVT
440
-3
ALQ
0
-2
AGK
1
-2
MQG
3
-1
OSH
4
-10
ORG
5
ASX200
Info Tech
5
0
7
7
1
8
5
14
6
14
Utilities
Health Care
0
Transportation
Energy
Discretionary
Industrials
Telcos
Staples
Materials
Financials
0
NAB
200
45
40
ANN
300
68
FXJ
350
12
CCL
400
16
26
14
Industry group contribution to total return
500
450
400
34
350
27
21
37
300
112
250
200
150
131
100
50
0
Source: Bloomberg, Morgan Stanley Research
Insurance
Telcos
Real Estate
F&S Retailing
Banks
Materials
-50
15
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
ASX 200 performance attribution CYTD
Sector contribution to total return
Top / bottom 10 company contribution to total return
800
700
21
12
10
9
120
745
100
72
95
75
80
437
400
53
60
300
37 36 34
40
200
27 27 26
23
20
100
FOX
WPL
NAB
WFD
TLS
BHP
ANZ
WOW
CBA
WBC
-9 -10 -10 -10
FMG
-5
ARI
RRL
-4
-20
CCL
AGO
-4
ORI
-4
SUL
-3
QBE
-3
CSL
0
ASX200
Info Tech
Health Care
Discretionary
Utilities
Staples
Telcos
Industrials
Energy
Materials
Financials
0
AMP
500
39
49
50
600
33
9
1
1
0
-4
-4
-5
-10
745
Consumer
D&A
Capital Goods
Auto & Comp
Retailing
Pharma
Biotech & LS
Media
Food B&T
ASX200
110
400
300
50
39
13
Software &
Services
72
43
14
Professional
Services
500
48
19
HC Equip &
Services
600
21
Utilities
700
35
22
Diversified
Financials
800
Consumer
Services
Industry group contribution to total return
257
200
100
Source: Bloomberg, Morgan Stanley Research
Transportation
Telcos
F&S Retailing
Insurance
Energy
Materials
Real Estate
Banks
0
16
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Style Monitor – Value over momentum and growth in July
10%
8%
7.8%
7.2%
6.3%
6%
3.1%
5.1%
4.4%
4.1%
4%
7.0%
6.6%
4.0%
4.1%
2.2%
5.8%
4.3%
4.5%
4.3%
6.4%
6.4%
3.9%
4.0%
2.5%
2%
0.8%
0%
-2%
-1.6%
-2.2%
-2.3%
-2.5%
-3.8%
-4%
-6%
Price To Earnings
Price to Book
Dividend Yield
Source: RIMES, IBES, Morgan Stanley Research
3-Mo Prc Mom
12-Mo Prc Mom
Q1
Q5
3-Mo EPS
Revisions
EPS Grow th
Size (Mkt Cap)
EPS Dispersion
Q1-Q5
Q1-Q5 is performance of the top (Q1) vs. bottom (Q5) rated 20% of stocks by selected factor within the S&P/ASX 100 universe. The above chart uses IBES consensus data.
Definitions
Price to Earnings – Month-end price divided by 12-month forward consensus (IBES) EPS. Factor excludes stocks with negative earnings. Q1 = Low P/E (High Earnings Yield); Q5 = High
P/E (Low Earnings Yield).
Price to Book – Month-end price divided by 12-month forward consensus (IBES) BPS. Q1 = Low P/B; Q5 = High P/B.
Dividend Yield – 12-month forward consensus (IBES) DPS divided by month-end price. Factor excludes stocks with zero dividends. Q1 = High Dividend Yield; Q5 = Low Dividend Yield.
3-Mo Prc Mom – 3-month total return. Q1 = High total returns; Q5 = Low Total Returns.
12-Mo Prc Mom – 12-month total return. Q1 = High total returns; Q5 = Low Total Returns.
3-Mo EPS Revisions - 12-month forward consensus (IBES) EPS divided by 12-month forward consensus (IBES) EPS 3-months ago. Q1 = High EPS Revisions returns; Q5 = Low EPS Revisions.
EPS Growth - 12-month forward consensus (IBES) EPS divided 12-month trailing consensus (IBES) EPS. Factor excludes stocks with negative EPS. Q1 = High EPS growth; Q5 = Low EPS
growth.
Size (Mkt Cap) – Market Capitalisation. Q1 = Small Cap; Q5 = Large Cap.
EPS Dispersion – Consensus (IBES) standard deviation divided by 12-month forward consensus (I/B/E/S) EPS. Take the average of the FY1 and FY2 EPS Dispersion. Q1 = Low EPS
Dispersion; Q5 = High EPS Dispersion.
17
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Value factor P/E and P/B performed best in July. Short-term momentum reversal
July Q1–Q5 factor performance spread
CYTD Q1–Q5 factor performance spread
4.1%
Size (Mkt Cap)
Fw d Price to Book
4.1%
EPS Grow th
2.5%
Size (Mkt Cap)
-1.6%
EPS Grow th
-2.1%
1-Mo EPS Revisions
3.4%
2.2%
-3.1%
Fw d Dividend Yield
0.8%
12-Mo Prc Mom
9.7%
Fw d Price to Book
4.4%
52W Beta
Fw d Price to Earnings
1-Mo EPS Revisions
-3.9%
Fw d Price to Earnings
-4.0%
-4.1%
52W Beta
Fw d Dividend Yield
-2.2%
EPS Dispersion
-5.8%
EPS Dispersion
-2.3%
3-Mo EPS Revisions
-6.0%
-2.5%
3-Mo EPS Revisions
3-Mom Prc Mom
3-Mom Prc Mom
-3.8%
-5%
-4%
12-Mo Prc Mom
-3%
-2%
-1%
0%
1%
2%
3%
4%
-15%
5%
-9.4%
-10.1%
-10%
-5%
0%
5%
10%
15%
Monthly Q1-Q5 factor performance spreads
Factors
Fwd Price to Earnings
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Avg
0.66%
3.76%
2.97%
5.71%
-0.90%
0.06%
-1.44%
-2.72%
0.68%
1.58%
-6.71%
0.77%
4.11%
Fwd Price to Book
-0.79%
-0.08%
-1.39%
0.76%
1.09%
2.81%
-1.17%
-5.07%
5.43%
-0.62%
4.33%
4.05%
0.48%
Fwd Dividend Yield
-1.59%
2.35%
4.90%
0.61%
-1.56%
-1.31%
-4.20%
0.97%
2.18%
-0.38%
1.98%
-2.24%
0.36%
3-Mom Prc Mom
-1.91%
2.92%
0.53%
4.56%
-0.61%
-2.40%
-2.94%
0.33%
-3.89%
2.10%
1.01%
-3.79%
-0.03%
12-Mo Prc Mom
-1.30%
1.63%
8.21%
10.52%
-1.61%
-2.37%
-0.32%
4.32%
-5.13%
-3.49%
-4.05%
0.81%
0.58%
1-Mo EPS Revisions
-2.34%
0.02%
0.96%
5.17%
-0.49%
2.26%
-2.34%
-0.17%
-1.12%
-1.01%
0.54%
-2.06%
0.13%
3-Mo EPS Revisions
-3.09%
0.22%
5.24%
3.15%
1.87%
-1.52%
-1.14%
-0.18%
-2.03%
-0.62%
1.86%
-2.50%
0.34%
EPS Growth
1.28%
-1.09%
3.36%
1.75%
6.07%
-0.03%
-0.58%
6.26%
1.97%
-4.10%
0.74%
-0.23%
-1.56%
Size (Mkt Cap)
3.62%
1.08%
-4.82%
-3.41%
5.68%
1.15%
2.82%
-1.47%
1.98%
-4.09%
0.69%
2.46%
0.29%
EPS Dispersion
-1.90%
1.40%
5.47%
0.69%
-3.75%
-0.61%
-2.78%
1.26%
-0.99%
1.10%
-1.56%
-2.33%
-0.15%
3.40%
3.10%
2.96%
-0.78%
3.95%
0.37%
1.33%
0.26%
-2.28%
-4.73%
-3.26%
4.43%
0.39%
52W Beta
=> top 3 ranked score
Source: RIMES, IBES, Morgan Stanley Research
=> bottom 3 ranked score
18
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
ASX 200 Sector Performance Charts
Financials – Strong outperformers, with real estate catching up
180
TR Index
Materials & Industrials – materials and capital goods find support
180
160
160
140
140
120
120
100
100
80
80
60
Jan-2013
Apr-2013
ASX200
Jul-2013
Banks
Oct-2013
Div Fins
Jan-2014
Insurance
Apr-2014
Real Estate
Jul-2014
60
Jan-2013
180
160
160
140
140
120
120
100
100
80
80
Apr-2013
ASX200
Jul-2013
Staples
Oct-2013
Food & Bev
Source: Bloomberg, Morgan Stanley Research
Jan-2014
Services
Apr-2014
Retail
Jul-2013
ASX200
Materials
Jul-2014
Media
Oct-2013
Energy
Jan-2014
Apr-2014
Capital goods
Jul-2014
Prof. Svcs.
Defensives – in favour on yield, with telcos particularly strong
TR Index
60
Jan-2013
Apr-2013
IT
Consumer-facing – media & services flattening, food & bev weak
180
TR Index
TR Index
60
Jan-2013
Apr-2013
ASX200
Jul-2013
Telcos
Oct-2013
Utilities
Jan-2014
Transport
Apr-2014
Jul-2014
Healthcare
19
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Commodity Price Dynamics
RBA Commodity Price Indices (USD) to June – broad down-trend
180
Base metals - copper support, nickel up on supply dynamic
2012/13 = 100
10
160
140
120
100
80
60
40
2006
2007
2008
2009
Bulk Commodities
2010
2011
Base metals
2012
2013
2014
$US000's/t
$US000's/t
9
45
8
40
7
35
6
30
5
25
4
20
3
15
2
10
1
5
0
2006
0
2007
2008
2009
Aluminium
Rural commodities
Bulk commodities back to 2009 levels on rapid supply growth
2010
Copper
2011
Zinc
2012
2013
2014
Nickel (rhs)
Tapis holding tight $110-120/bbl range; gold holding ~$1300/oz
$US/bbl
$US/t
50
$US/oz
160
1,900
300
140
1,700
250
120
1,500
200
100
1,300
150
80
1,100
100
60
900
40
700
350
50
0
2006
2007
2008
Iron Ore (Fines, spot)
2009
2010
2011
Hard Coking Coal (Contract)
Source: Bloomberg, RBA, Morgan Stanley Research
2012
2013
2014
Thermal Coal (Nw castle, FOB)
20
500
2006
2007
2008
2009
2010
Tapis Crude (lhs)
2011
2012
2013
2014
Gold (rhs)
20
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Earnings & Valuations
21
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Go East: Look through to FY15e Earnings
Morgan Stanley Australia – 12m forward earnings & ASX 200 target
Bear
Base
Bull
Weighted
12m-fw d EPS
EPS grow th*
357
-4%
404
9%
439
19%
402
8%
12m-fw d PE
12m-fw d target
11.9
4,200
14.5
5,900
16.3
7,200
14.4
5,800
Capital gains
Total return
-23%
-19%
8%
12%
31%
36%
6%
10%
Probability
20%
60%
20%
Earnings outlook – optimistic on FY15 IBES consensus delivery
500
Index
450
400
350
300
250
200
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
12m fw d EPS
Fair-value analysis on equilibrium DDM
Base case
Bull case
ASX 200 market targets – 12 month rolling basis
Bear Case
Base Case
Bull Case
8,000
Nominal EPS grow th
3.25%
5.25%
6.00%
7,000
Risk-free rate
3.25%
4.75%
5.50%
Equity risk premium
5.50%
5.00%
4.50%
Cost of equity
8.75%
9.75%
10.00%
5,000
12m fw d PE ratio
11.9
14.5
16.3
4,000
Probability
20%
60%
20%
Probability-w eighted PE ratio
Bear case
Index
7,200
6,000
5,900
5,800
4,200
3,000
14.4
2,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Bull/bear case
Source: Morgan Stanley Research
ASX 200
Base case
Probability-w eighted
22
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
ASX 200 Valuations and Earnings – market trading at 15.0x forward earnings
ASX 200 is trading above its LT average at 15.0x
Earnings growth starting to contribute to market returns
12 mth fw d (x)
100%
20
YoY %
80%
18
60%
16
40%
20%
14
0%
12
-20%
10
-40%
8
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
PE
avg
1998
2000
2002
2004
2006
12 mth fw d PE
+/-1 std
ASX 200 on five-year highs, predominately multiple-driven
8000
-60%
1996
Index
PE
2008
2010
EPS
2012
2014
Index
ASX 200 P/E Dispersion – High P/E (80th n’tile) vs. Low P/E (20th
n’tile). Gap narrows but each quintile trading above LT average.
17
30
P/E (x)
Dispersion*
16
7000
15
6000
14
5000
1.2
25
1.0
20
0.8
13
4000
12
3000
11
2000
15
0.6
10
0.4
10
5
1000
0
2003
1.4
0.2
9
8
2004
2005
2006
2007
12 mf fw d PE
2008
2009
Index
Source: RIMES, IBES, Morgan Stanley Research
2010
2011
2012
EPS
2013
*high P/E less low P/E divided by median
0.0
0
01
02
03
04
05
Dispersion (RHS)
06
07
08
09
Low P/E (20th n'tile)
10
11
12
13
14
High P/E (80th n'tile)
23
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Long-term Valuation Charts – Macro sector breakdown
Price to Earnings – ASX 200 – Last 15.0x
Price to Earnings – ASX 200 Resources – Last 13.9x
12 mth fw d (x)
12 mth fw d (x)
25
20
23
18
21
19
16
17
15
14
13
12
11
9
10
7
5
8
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
PE
avg
PE
+/-1 std
Price to Earnings – ASX 200 Industrials ex Financials – Last 17.7x
avg
+/-1 std
Price to Earnings – ASX 200 Financials (GICS) – Last 13.9x
12 mth fw d (x)
12 mth fw d (x)
22
16
20
15
14
18
13
16
12
14
11
12
10
10
9
8
8
02
04
05
06
PE
07
09
avg
Source: RIMES, IBES, Morgan Stanley Research
10
+/-1 std
11
12
14
02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11 11 12 12 13 13 14
PE
avg
+/-1 std
24
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Consensus ASX 200 Earnings – Accelerated downward trend for materials earnings
Consensus FY14 EPS forecasts
120
Consensus FY15 EPS forecasts
Index=100, Aug 2011
120
110
Telcos
Health Care
Utilities
Financials
100
90
Index=100, Aug 2012
110
Telcos
Health Care
Financials
100
Info Tech
Discretionary
Energy
Staples
Market
Staples
Info Tech
80
Market
Discretionary
70
90
Energy
80
Industrials
70
Utilities
60
50
Materials
40
Aug-11
Jan-12
Jun-12
Nov-12
Apr-13
Sep-13
Feb-14
Jul-14
Macro sector 12m forward EPS breakdown
120
Industrials
Materials
60
Aug-12
Nov-12
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Consensus annual EPS forecasts
Index=100, Dec-2010
600
EPS Index
2005
550
110
2006
2007
500
2008
100
450
90
2009
2010
400
2011
2012
350
80
2013
300
70
2014
2015
250
60
Dec-10
Jun-11
Dec-11
Resources
Jun-12
Dec-12
Jun-13
Industrials ex Financials
Source: RIMES, IBES, Morgan Stanley Research
Dec-13
Financials
Jun-14
2016
200
02
03
04
05
06
07
08
09
10
11
12
13
25
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Consensus Earnings – Australian vs. Global Markets – US resilience
Consensus FY14 EPS Forecasts – Australia vs. Global Markets
102
EPS, Index
Consensus FY15 EPS Forecasts – Australia vs. Global Markets
105
EPS, Index
100
100
98
96
S&P500
S&P500
ASX200
95
90
MSCI DM
90
88
MSCI APxJ
94
MSCI DM
ASX200
92
MSCI Europe
MSCI APxJ
85
86
MSCI EM
MSCI Europe
84
MSCI EM
80
82
Dec-12
Apr-13
Aug-13
Dec-13
Mar-13
Apr-14
MSCI World (DM) Annual Consensus Forecasts
36
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Consensus FY14 EPS Forecasts – US supports DM earnings.
EPS, Index
102
34
2016
32
EPS, Index
100
98
30
2015
28
26
12 MF
2014
24
2013
22
96
94
ASX200
92
MSCI DM
90
20
MSCI APxJ
88
18
DMxUS
86
16
14
84
12
82
04
05
06
07
08
09
10
11
12
13
14
MSCI EM
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Source: RIMES, MSCI, IBES, Morgan Stanley Research
26
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Consensus EPS Growth Forecasts – FY15 continues to trend lower to 6.6%
Annual EPS Grow th (%)
FY11-16 consensus EPS growth forecasts
FY2013
FY2014
FY2015
FY2016
-1.5
7.4
6.6
8.3
22.7
EPSg (%)
20%
S&P/ASX 200
Sector
Energy
15%
10%
-7.1
36.4
-28.6
18.3
-2.2
8.5
Industrials
35.2
-15.8
24.1
17.6
-11.8
2.6
13.4
11.6
4.4
1.3
5.4
8.2
18.2
9.7
13.4
11.6
FY16 = +8.3%
Discretionary
FY14 = +7.4%
Staples
FY15 = +6.6%
5%
2.7
Materials
Health Care
Financials
7.3
8.8
5.5
5.3
Info Tech
9.5
4.5
15.1
12.0
11.8
6.4
3.0
5.8
22.7
Telcos
0%
FY13 = -1.5%
-5%
Feb-11
Industry Group
Energy
Jul-11
Dec-11 May-12
2012
Oct-12
2013
Mar-13
2014
Aug-13
Jan-14
2015
Materials
Jun-14
Capital Goods
2016
Commercial Services & Supplies
Historical consensus annual EPS growth trends
%
2005
2006
20%
2007
10%
0%
-10%
-20%
-30%
03
04
05
06
07
08
09
10
Source: RIMES, IBES, Morgan Stanley Research
11
12
13
14
-7.1
36.4
18.3
-2.2
8.5
-9.2
-10.4
4.8
5.4
11.0
2.1
-0.8
5.2
181.2
-33.5
66.7
29.2
10.0
-1.2
11.7
10.9
Consumer Durables & Apparel
-16.5
-25.3
15.9
12.8
Consumer Services
-15.9
11.6
15.6
13.6
Media
-23.0
-5.4
13.1
8.9
3.5
-5.9
9.2
9.5
Transportation
Automobiles & Components
30%
2.7
-28.6
Retailing
Food & Staples Retailing
6.0
4.1
5.6
8.2
-4.3
-16.6
3.5
8.3
8.8
7.1
14.9
11.0
29.1
12.3
12.0
12.3
7.4
8.7
4.3
3.9
Diversified Financials
12.7
23.8
10.1
10.3
2013
Insurance
12.8
7.5
11.0
10.0
2014
Real Estate
1.5
4.6
5.4
6.4
2015
Softw are & Services
9.5
4.5
15.1
12.0
2016
Technology Hardw are & Equipment
50.0
2008
Food Beverage & Tobacco
2009
Health Care Equipment & Services
2010
Pharmaceuticals & Biotechnology
2011
Banks
2012
-65.4
-27.7
84.9
Telcos
11.8
6.4
3.0
5.8
Utilities
4.2
-0.2
8.7
10.9
27
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Consensus EPS Revisions – lower on the back of Materials and Utilities downgrades
12m EPS Revisions (%)
Consensus ASX 200 12m forward 1m % EPS revisions
0.5
S&P/ASX 200
1-Mo
3-Mo
6-Mo
-0.87
-1.66
-1.76
Sector
0.0
Energy
-0.5
-1.0
-1.5
-2.0
0.72
2.88
1.62
Materials
-4.12
-8.64
-10.41
Industrials
-1.08
-3.57
-0.77
Discretionary
-0.08
-2.17
-2.52
Staples
-0.31
-1.49
-5.75
Health Care
0.30
0.26
-1.18
Financials
0.06
0.78
1.93
Info Tech
-0.31
-0.38
1.74
Telcos
-0.11
-0.57
1.13
Industry Group
Energy
-2.5
Oct-10
Materials
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Consensus ASX 200 12m forward 3m % EPS revisions
4.0
0.0
-2.0
-4.0
-6.0
Apr-11
Oct-11
Apr-12
Oct-12
Source: RIMES, IBES, Morgan Stanley Research
Apr-13
Oct-13
Apr-14
1.62
-10.41
-1.37
-2.90
-6.34
Commercial Services & Supplies
-1.44
-4.55
-4.40
Transportation
-0.60
-2.82
5.68
Automobiles & Components
-0.49
-1.99
-2.14
-1.45
Consumer Durables & Apparel
1.08
0.24
Consumer Services
0.66
0.93
2.18
-0.91
-5.94
-5.42
Retailing
-1.03
-5.50
-9.34
Food & Staples Retailing
-0.38
-1.32
-3.48
Food Beverage & Tobacco
0.28
-2.86
-20.65
Health Care Equipment & Services
0.34
0.50
-1.49
Pharmaceuticals & Biotechnology
0.27
0.03
-0.88
Banks
0.12
1.23
2.33
Diversified Financials
-0.30
0.39
2.08
Insurance
-0.06
-0.41
1.22
Real Estate
-0.01
-0.46
0.29
Softw are & Services
-0.31
-0.38
1.74
-51.86
-74.42
-77.54
Technology Hardw are & Equipment
-8.0
Oct-10
2.88
-8.64
Capital Goods
Media
2.0
0.72
-4.12
Telcos
-0.11
-0.57
1.13
Utilities
-3.70
-3.38
-6.06
28
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Earnings Revision Breadth – materials accounted for 75% of net downgrades
ASX 200 FY1 Earnings Revision Breadth*
ASX 200 Sector/Industry Group Earnings Revision Breadth*
Mom entum %
Latest
-3M
-6M
3M
6M
-2.3
-3.0
0.4
-1.6
-3.4
-1.5
Consumer Discretionary
-3.0
-4.5
-0.4
-4.1
-4.1
-0.3
Consumer Staples
-3.5
-8.0
-7.3
-4.7
-0.7
-3.3
Energy
-1.6
0.2
1.9
-4.9
-1.8
5.1
Financials
-1.4
-1.2
4.1
2.7
-5.3
-3.9
Australia (S&P/ASX 200)
10%
3 Month Average ERR %
Latest
ERR %
15%
Sector
5%
0%
-5%
-10%
-15%
-20%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Health Care
-2.8
-3.0
-0.5
0.3
-2.5
-3.4
Industrials
-2.0
-3.1
1.4
-1.6
-4.5
-1.5
Information Technology
-2.2
-0.7
-2.2
-2.1
1.4
1.4
Materials
-1.4
-4.2
-1.8
-2.1
-2.3
-2.1
Telecommunications
-2.4
-1.2
2.9
-3.3
-4.1
2.1
Utilities
-8.6
-2.1
-3.0
1.3
1.0
-3.4
Industry Group
Energy
-1.6
0.2
1.9
-4.9
-1.8
5.1
Materials
-1.4
-4.2
-1.8
-2.1
-2.3
-2.1
Capital Goods
-2.2
-4.0
3.5
0.0
-7.5
-4.0
Commercial Services & Supplies
0.0
-2.6
0.5
-1.3
-3.2
-1.3
Transportation
-4.3
-3.0
0.5
-4.0
-3.5
1.0
Consumer Durables & Apparel
9.1
0.0
0.0
-13.9
0.0
13.9
Consumer Services
-2.9
-2.5
-1.4
-2.4
-1.1
-0.1
Media
-5.5
-7.1
0.3
-1.6
-7.4
-5.5
Retailing
-1.8
-5.0
0.2
-6.5
-5.2
1.5
5%
Food & Staples Retailing
-4.2
-7.7
-8.4
3.0
0.7
-10.7
Food Beverage & Tobacco
-3.0
-8.3
-6.8
-11.6
-1.5
3.3
0%
Health Care Equipment & Services
-3.6
-3.4
1.0
1.1
-4.4
-4.5
Pharmaceuticals & Biotechnology
0.0
-1.8
-4.9
-1.9
3.1
0.1
Banks
0.9
1.9
0.9
5.7
1.0
-3.8
-11.5
ERB
3MMA ERB
ASX 200 FY2 Earnings Revision Breadth*
20%
15%
10%
-5%
Diversified Financials
-10%
-15%
-12.1
-4.6
5.3
6.9
-9.9
Insurance
4.2
-3.4
6.8
-4.2
-10.2
0.8
Real Estate
1.5
-0.2
4.1
0.8
-4.2
-1.0
-20%
Softw are & Services
-2.2
-0.7
-2.2
-2.1
1.4
1.4
Telecommunication Services
-2.4
-1.2
2.9
-3.3
-4.1
2.1
-25%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Utilities
-8.6
-2.1
-3.0
1.3
1.0
-3.4
ERB
3MMA ERB
* Earnings revision breadth (ERB) is measured by the number of consensus
estimates up less down, divided by the total number of estimates.
Source: RIMES, IBES, Morgan Stanley Research
29
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
ASX 200 Price to Earnings – valuations looking stretched across sectors
P/E dispersion, % from 10Y average by sector
Sector P/E breakdown
12m fwd PE
40%
Current
30%
20%
25%
17%
13%
8%
10%
12%
19%
29%
12%
0%
-10%
-18%
Telcos
Industrials
Info Tech
Discretionary
Materials
Financials
Staples
Health Care
Utilities
ASX 200
Energy
-30%
P/E dispersion, % from 10Y average by industry group
35%
31%
30%
24%
25%
20%
15%
10%
5%
5%
6%
9%
9% 10%
12% 13%
14%
16% 16%
26%
18% 19%
0%
-5%
Source: RIMES, IBES, Morgan Stanley Research
15.0
13.1
13.3
14.1
Discretionary
16.8
13.6
14.0
15.5
Staples
18.1
15.7
16.2
16.4
Energy
15.5
19.8
18.8
Financials
13.9
12.1
12.4
Market
5Y Avg 10Y Avg
LT
115%
113%
107%
111%
123%
119%
108%
120%
115%
112%
110%
17.9
103%
78%
82%
87%
12.6
93%
115%
112%
110%
Health Care
20.1
17.7
18.6
20.2
134%
113%
108%
99%
Industrials
20.0
15.9
16.0
15.9
133%
125%
125%
126%
Info Tech
19.8
16.5
16.5
25.6
132%
120%
120%
77%
Materials
13.9
11.8
11.8
12.2
92%
118%
117%
113%
Telcos
16.4
12.5
12.8
13.1
109%
132%
129%
125%
Utilities
17.0
15.0
17.0
17.0
113%
114%
100%
100%
113%
Industry Groups
Banks
13.7
11.9
12.1
12.2
91%
115%
114%
Capital Goods
11.4
11.5
12.5
13.6
76%
99%
91%
84%
Comm & Prof Services
17.2
14.4
15.3
15.9
114%
119%
113%
108%
Cons Durabales & Apparel
16.2
12.2
12.9
13.6
108%
134%
126%
120%
Consumer Services
17.9
14.5
14.4
15.4
119%
124%
124%
116%
Diversified Financials
14.7
12.4
12.5
13.3
98%
118%
118%
110%
Food & Staples Retailing
18.1
15.8
16.6
16.8
121%
115%
109%
108%
Food Beverage & Tobacco
17.6
15.4
15.2
15.5
117%
114%
116%
113%
HC Equip & Services
18.5
16.3
17.0
19.0
123%
113%
109%
97%
Insurance
13.1
11.9
12.6
12.9
87%
110%
105%
102%
Media
16.5
13.5
14.2
16.1
110%
122%
116%
103%
Pharma, Biotech & LS
21.7
19.1
20.4
22.2
144%
113%
106%
98%
Real Estate
14.9
13.1
13.3
13.6
99%
113%
112%
110%
Retailing
14.3
12.4
13.0
13.1
95%
115%
110%
109%
Software & Services
19.8
16.5
16.6
18.0
132%
120%
119%
110%
Transportation
26.1
20.3
19.9
18.4
174%
128%
131%
142%
Transportation
Cons Dur &
App
Cons Serv
Software &
Services
Div Fin
Food Bev &
Tob
Media
Banks
Comm & Prod
Serv
Real Estate
Insurance
Capital Goods
-15%
Retailing
-9%
Pharma Bio &
LS
Food &
Staples
HC Equip &
Serv
-10%
PE Rel to:
LT
Sectors
20%
0%
-20%
S&P/ASX 200
5Y Avg 10Y Avg
30
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Cross-Asset Valuations
Equity yields remains structurally attractive compared to bond
yields as financial repression continues
Dividend yield versus bond yield gap expands in 2014
8%
8%
6%
6%
5.0%
3.3%
4%
4%
3.4%
2%
2%
1.2%
0%
0%
-2%
-2%
*MSCI Australia
-4%
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
*ASX 200
-4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Earnings yield* / Bond yield gap
Shiller earnings yield / Inflation-linked bond yield gap
Earnings Yield* gap
Franked dividend yields on Banks, Telcos and Utilities overshadow
sovereign and corporate yields
10
Dividend yield gap
QE has primarily boosted equities by reducing credit risk; impact
on pure equity risk is unclear
6
QE 1
QE 2
QE 3
5
8
2.35
2.34
6
4
1.93
3
1.85
4
2
5.49
2
4.41
5.48
5.47
c
5.42
3.42
3.92
1
0
0
Banks
Consumer
Staples
REITs
Telco
12MF Net Dividend Yield
Source: Datastream, Morgan Stanley Research
Utilities
10 Yr
Australian
Govt Bond
Gross Dividend Yield
Aus
Investment
Grade
Corporate
Bond
-1
-2
2008
2009
QE
2010
Credit Spread (IG)
2011
2012
2013
2014
Pure Equity Spread (Equity Risk - Credit Risk)
31
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Cross-Asset Signals – Fixed Income
Yield curves in a period of “bull-flattening” as investors seek higher
return at longer durations
4
Australian and US Gov bond spread contracts in July – putting
downward pressure on the AUD
12
5
10
4
8
3
6
2
4
1
2
0
3
2
1
0
-1
-2
1992
1994
1996
1998
2000
2002
2004
US Yield Curve (10Y-90D) %
2006
2008
2010
2012
2014
Aus Yield Curve (10Y-90D) %
Short-term corporate credit spreads remain low over the last year
as balance sheets continue to be shored up
6
5
0
1992
-1
1994
1996 1998
2000 2002
2004 2006
2008 2010 2012
2014
Equity
spreads
Ausmarket
- US 10 Yrsupport
Spread (rhs)from low
US 10 credit
Yr Yield (lhs)
%
Australian 10 Yr Yield (lhs)
4.5
-50%
4.0
-40%
3.5
-30%
-20%
3.0
4
-10%
2.5
0%
2.0
3
10%
1.5
2
1
0
2004
30%
0.5
40%
0.0
1997
2006
2008
Australian IG Corporate Bond Spread (1-3Yr)
2010
2012
2014
US IG Corporate Bond Spread (1-3Y)
Source: BAML, Bloomberg, Morgan Stanley Research
20%
1.0
50%
1999
2001
2003
2005
Aus Corporate Bond Spread (All Mat)
2007
2009
2011
2013
MSCI Aus TR YoY (rhs, inverted)
32
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Cross-Asset Signals – Volatility
Implied and realized equity volatility remains at low levels
25
Volatility across equity indices (ex Nikkei) have fallen last year
30%
Based on w eekly returns
25%
20
20%
15
15%
10%
10
5%
5
0
Feb-12
0%
Aug-12
Feb-13
Aug-13
Implied Volatility (3M ATM)
MSCI AC
World
(Local
ccy)
Feb-14
Historical Volatility (60D Parkinson)
Australian Volatility Premium remains below historical average…
but US option markets expect much more turbulence ahead
ASX 200
SP500
Euro
FTSE 100 Nikkei 225
STOXX 50
1 Year Historical Volatility
Hang
Seng
HS CEI
3 Year Volatility p.a.
Put-Call volatility skew implying option market more bearish than
equity market
0
15
12%
8%
-1
10
4%
-2
0%
5
-3
-4%
0
-5
Feb-12
-4
Vol Premium: implied 3month at-the-money vs historical 60D Parkinson
Aug-12
Feb-13
ASX 200 Volatility Premium (%)
Aug-13
S&P500
Source: Bloomberg, Morgan Stanley Research
Feb-14
ASX 200 Average 60D
-8%
Risk Reversal: 1st month
-5
Dec-12
Mar-13
Jun-13
-12%
Sep-13
25 Delta Risk Reversal (20D MA) %
Dec-13
Mar-14
Jun-14
MSCI Australia Trailing 20D Performance (%)
33
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Cross-Asset Correlations
ASX index correlation with MSCI EM has dropped off lately
Commodity Bust: index
rebalances tow ards
banks / domestic
defensives. Both EM and
DM correlations fall
The Mining-boom and post-GFC
China stimulus afterglow - EM
linkage > DM linkage
1.0
0.9
0.8
Rate correlations with the US continue to increase on the long
end; diverging monetary policy cycles influence the short-end
Long-term grow th linkages grow
stronger
0.70
0.65
0.60
0.7
0.55
0.6
0.50
0.5
0.45
0.40
0.4
2006
2007
2008
2009
2010
260D Correlation: ASX 200 vs MSCI World (DM)
2011
2012
2013
2014
ASX 200 vs MSCI EM
Total returns, rel ASX200
Aus 10yr Yield, inverted
140
130
2.0%
1.0
2.5%
0.8
3.0%
0.6
3.5%
0.4
4.0%
0.2
4.5%
0.0
5.0%
-0.2
5.5%
100
6.0%
90
Jan2010
6.5%
JulJanJul2010
2011
2011
Aus 10yr Yield (rhs, inverted)
JanJulJan2012
2012
2013
Banks
Property
Source: Bloomberg, Morgan Stanley Research
Jul2013
Utilities
Oct11
Jan12
Apr12
Jul12
Oct12
Jan13
Apr13
Jul13
Oct13
Aus 5 Yr vs US 5 Yr
Jan14
Apr14
Jul14
Aus 2 Yr vs US 2 Yr
Are we moving back to liquidity-driven trading?
120
110
Jul11
240D Correlation: Aus 10 yr vs US 10 Yr
Australian bond-proxies delivering on global rally in yields
150
Apr11
JanJul2014
2014
Infrastructure
Normal Scenario: Good Data is Good
Normal Macro
Behaviour
Taper Talks
in May 2013
Average = 0.5
-0.4
Average = -0.13
Back to Liquidity
Driven Markets?
-0.6
Taper Tantrum: Good Data is Bad
-0.8
22 Day Correlation: ASX 200 and Aus 10 Yr Daily Change
Jul-14
2005
Apr-14
2004
Jan-14
2003
0.20
Jan11
Oct-13
2002
Monetary policy cycles
diverge
0.25
Jul-13
0.0
2001
0.30
Apr-13
0.1
0.35
Jan-13
0.2
A New Order in 2014?
Increasing international
DM linkage via Health,
Building Mats and Div
Fin over EM
Oct-12
The Old Order: Australia
more correlated to DM than
EM, Tech crash shocks the
ASX
Jul-12
0.3
GFC: correlations
spike as markets
around the w orld sellof f
S&P 500 vs US 10 Yr
34
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Market Breadth & Size Dynamics
35
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
ASX 200 Breadth
% of companies within the ASX 200 with positive performance YTD
ASX 200 sector performance vs. breadth
0%
100%
90%
20%
40%
60%
80%
100%
120%
Market
80%
70%
Utilities
68%
avg: 62%
Telcos
Info Tech
60%
Financials
50%
Health Care
40%
Staples
30%
Discretionary
Industrials
20%
Materials
10%
Energy
0%
0.0%
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
All sectors made a positive contributions to performance in July
10
2.0%
2013
4.0%
6.0%
8.0%
YTD (%) (low er axis)
10.0%
12.0%
14.0%
16.0%
Breadth (%) (upper axis)
% of companies outperforming the ASX 200 index on TR basis –
pass mark leading into reporting season
60%
9
50%
50%
8
avg: 43%
7
40%
6
5
30%
4
3
20%
2
10%
1
0
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
No. of Sectors w ith +ve Returns
Source: RIMES, IBES, Morgan Stanley Research
Feb-14
0%
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
36
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
ASX 200 Sector level breadth
No. of Co's Dow n
Source: RIMES, IBES, Morgan Stanley Research
No. Co's outperforming
Utilities
Telcos
Info Tech
Financials
Utilities
Telcos
Info Tech
Financials
Health Care
0
Utilities
5
0
Telcos
10
5
Info Tech
15
10
Financials
15
Health Care
20
Staples
25
20
Discretionary
30
25
Industrials
35
30
Materials
40
35
Energy
40
No. of Co's
Staples
45
Discretionary
No. of Co's
No. Co's Up
No. of Co's underperforming
Number of companies within each sector under/outperforming the
market YTD
Industrials
45
Health Care
Utilities
No. Co's outperforming
No. of Co's Dow n
Number of companies up/down YTD within each sector
Materials
No. Co's Up
Staples
0
Energy
5
0
Telcos
10
5
Info Tech
15
10
Financials
20
15
Health Care
20
Staples
25
Discretionary
30
25
Industrials
35
30
Materials
40
35
Energy
40
No. of Co's
Discretionary
45
Industrials
No. of Co's
Energy
45
Number of companies within each sector under/outperforming the
market MTD
Materials
Number of companies up/down MTD within each sector
No. of Co's underperforming
37
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Small vs. Large Performance & Valuation – Small resources pulled away in July
Small (XSO) vs. Large (XTO) performance
110
Annual returns: Small vs. Large
Index, Apr-2011=100
25%
21%
19%
20%
100
15%
90
12%
11%
10%
80
5%
70
0%
60
-5%
50
-10%
1%
0%
-1%
-3%
-4%
-9%
-12%
-15%
40
-20%
30
Apr-11
Oct-11
Apr-12
Oct-12
Small Ords vs ASX 100
Apr-13
Industrials
Oct-13
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Resources
Annual returns: Small vs. Large Resources
18%
45%
50%
45%
40%
15%
11%
30%
10%
5%
-5%
-1%
3%
0%
0%
-1%
7%
10%
1%
1%
21%
20%
20%
5%
-8%
-15%
-3%
-10%
0%
-20%
-5%
-10%
-22%
-25%
Apr-14
Annual returns: Small vs. Large Industrials
20%
-14%
-16%
-10%
-6%
-9%
-14%
-20%
-30%
-17%
-11%
-8%
-16%
-21%
-21%
-40%
-50%
-46%
-60%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: RIMES, Morgan Stanley Research
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
38
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Small vs. Large Performance & Valuation (cont.)
12mf PE: Small Ordinaries (13.4x) vs. ASX 100 (15.1x)
19
Small Ordinaries trading at ~11% discount to Large Caps (ASX100)
on a 12 mth fwd P/E, in line with LT average
12m fw d PE (x)
120%
110%
17
100%
15
90%
13
80%
11
70%
9
60%
7
50%
5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
40%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Small Ords
12 mth fw d PE rel
ASX 100
12mf P/E: Small Industrials (14.3x) vs. ASX 100 Industrials (15.4x)
19
12m fw d PE (x)
-/+ 1 std
-/+ 2 std
12mf P/E: Small Resources (10.3x) vs. ASX 100 Resources (14.2x)
30
17
avg
12m fw d PE (x)
25
15
20
13
15
11
10
9
5
7
5
2001
2002
2003 2004
2005 2006
2007 2008
Small Industrials
Source: RIMES, IBES, Morgan Stanley Research
2009 2010
2011 2012
ASX 100 Industrials
2013
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Small Resources
ASX 100 Resources
39
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Small Cap Performance & Valuations – Small Resources outperform Industrials
Industrials/Resources relative performance to Small Ordinaries
170
Small Ordinaries sector performance
Relative to XSO
Index, Apr-2011=100
1-Mo
Absolute
3-Mo
YTD
Sm all Ordinaries
150
130
110
90
70
50
30
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Small Industrials vs Small Ords
Oct-13
Apr-14
Small Resources
Small Ordinaries 12m forward PE trading at 13.4x
1-Mo
3-Mo
YTD
+4.84
+3.42
+1.87
Small Resources
+3.22
+7.71
+5.72
+8.06
+11.13
+7.59
Small Industrials
-0.84
-1.85
-1.40
+4.01
+1.57
+0.46
Energy
+3.66
+6.60
-5.60
+8.50
+10.02
-3.73
Materials
+1.91
+5.02
+12.02
+6.75
+8.44
+13.88
Industrials
+0.18
-1.32
-8.90
+5.02
+2.10
-7.04
Discretionary
-0.71
-2.36
+1.23
+4.13
+1.06
+3.10
-3.05
Staples
-5.67
-8.96
-4.92
-0.82
-5.54
Health Care
+2.13
+7.19
-6.27
+6.98
+10.61
-4.40
Financials
-0.71
-2.99
+2.00
+4.13
+0.43
+3.87
Info Tech
-0.91
-0.13
-16.52
+3.93
+3.29
-14.65
Telcos
-2.49
-4.10
+0.04
+2.35
-0.68
+1.91
Utilities
-4.66
+10.05
-0.45
+0.18
+13.46
+1.42
Small Ordinaries sector price performance for July
12 mth fw d (x)
18
+10.0
16
+8.0
Discretionary
Financials
+4.8
+5.0
+7.0
Health Care
+4.1
+6.8
Materials
+4.1
Industrials
+4.0
Small Industrials
+4.0
12
+3.9
Info Tech
+6.0
14
Small Ordinaries
+8.1
+8.5
+2.3
+2.0
10
+0.2
+0.0
00
01
02
03
04
PE
05
06
07
08
avg
Source: RIMES, IBES, Morgan Stanley Research
09
10
+/-1 std
11
12
13
14
Energy
Small Resources
4
Telcos
-0.8
Staples
-2.0
6
Utilities
8
40
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Technicals & Positioning
41
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Technicals – S&P/ASX 200 Index – market trading at post GFC highs
ASX 200: 50- and 200-day moving average
6000
ASX 200 % from 50- and 200-day moving average
Index
20%
15%
5500
10%
5%
5000
0%
4500
-5%
-10%
4000
-15%
3500
Apr-11
Oct-11
Apr-12
Oct-12
Index
Apr-13
50DA
Oct-13
Apr-14
Oct-11
Apr-12
Oct-12
% from 50DA
200DA
ASX 200 Relative Strength Index (RSI)
100
-20%
Apr-11
Apr-13
Oct-13
Apr-14
% from 200DA
ASX 200 % from rolling 12-month highs – market trading at rolling
12 month highs
Index
0%
90
-10%
80
70
-20%
60
50
-30%
40
30
-40%
20
-50%
10
0
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
RSI(14)
Source: RIMES, IBES, Morgan Stanley Research
Oct-13
Apr-14
-60%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
42
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Technicals (cont.) – S&P/ASX 200 Industrials and Resources
ASX 200 Industrials 50- and 200-day moving average
9000
ASX 200 Industrials % from 50- and 200-day moving average
Index
20%
8500
15%
8000
10%
7500
5%
7000
0%
6500
-5%
6000
-10%
5500
-15%
5000
Apr-11
Oct-11
Apr-12
Oct-12
Index
Apr-13
50DA
Oct-13
Apr-14
Oct-11
200DA
Apr-12
Oct-12
% from 50DA
ASX 200 Resources 50- and 200-day moving average
7000
-20%
Apr-11
Apr-13
Oct-13
Apr-14
% from 200DA
ASX 200 Resources % from 50- and 200-day moving average
Index
20%
15%
6500
10%
6000
5%
5500
0%
5000
-5%
4500
-10%
-15%
4000
-20%
3500
3000
Apr-11
-25%
Oct-11
Apr-12
Oct-12
Index
Apr-13
50DA
Source: RIMES, IBES, Morgan Stanley Research
200DA
Oct-13
Apr-14
-30%
Apr-11
Oct-11
Apr-12
Oct-12
% from 50DA
Apr-13
Oct-13
Apr-14
% from 200DA
43
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Capitulation Indicator – 38% of Companies Are Trading within 5% of 52W highs
Capitulation Indicator vs. ASX 200 Index
3.0
Morgan Stanley Global Risk Demand Indices – near highs
z-score
Index
2.0
1.0
140
6
7000
130
4
6000
120
5000
110
8000
0.0
4000
-1.0
2
0
100
3000
2000
-3.0
1000
-4.0
0
Capitulation Indicator
-6
1999
2001
2003
2005
2007
GRDI Standardised (rhs, 0.7)
ASX 200 Index
% of companies trading within 5% of 52w high
2009
2011
2013
GRDI Index (lhs, 134.2)
% of ASX 200 companies trading…..
80%
60%
-4
80
70
1997
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
70%
-2
90
-2.0
100%
90%
68%
80%
57%
70%
50%
38%
60%
50%
40%
35%
30%
40%
30%
20%
20%
10%
0%
10%
3%
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
0%
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
<5% off 52w high
Source: RIMES, Morgan Stanley Global Currency Strategy, Morgan Stanley Research
>20% off 52w high
>40% of 52w high
44
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Investor Positioning
Aus equity ownership: Retail at 14.4%, Insto 40.9%, Foreign 43.2%
% share
Foreign ownership of Australian government bonds at 68%
80%
70
70%
60
60%
50
50%
40
40%
30
30%
20
20%
10
10%
0
1988 1990 1992
1994 1996 1998
Foreign
2000 2002
Institutions
2004 2006 2008
Retail
2010 2012 2014
1994
1998
2002
2006
2010
2014
% of Government Bonds Held Offshore
Managed fund asset allocation
A$bn
% share
45
120
40
100
35
80
30
60
25
40
20
20
15
0
10
-20
5
-40
1990
1990
Government
Household financial asset flows
140
0%
1986
1992
1994
1996
1998
2000
Pension Funds
2002
2004
2006
Liquid Assets
Source: ABS, RBA, Morgan Stanley Research
2008
Equities
2010
2012
2014
0
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Cash/TDs
Aus Bonds
Aus Equities
Property
Foreign Assets
45
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Global Equity Markets
46
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Global Equity Markets – US$ dollar support YTD for Aus market
April monthly price performance – Local vs. USD performance
8.0%
7.5%
6.8%
6.8%
China (Shanghai A Share)
Hong Kong (Hang Seng)
2.9%
Australia (All Ords)
Japan (Topix)
-1.0%
Canada (S&P/TSX Comp.)
-3.0%
Sw eden (OMX Stockholm 30)
UK (FTSE 100)
US (NASDAQ)
US (S&P 500)
US (DJ Indus.)
-4.1%
Sw itzerland (SMI)
-4.2%
Spain (IBEX 35)
-4.4%
Netherlands (AEX)
Italy (S&P/MIB)
Euro (DJ STOXX Euro 50)
France (CAC 40)
Germany (DAX 30)
Australia (All Ords)
US (NASDAQ)
US (S&P 500)
China (Shanghai A Share)
0.2%
-1.5%
-0.2%
-0.9%
-0.9%
-1.5%
-1.5%
-1.6%
-1.6%
-5.5%
-5.7%
-6.2%
-6.5%
-10% -8%
Sw eden (OMX Stockholm 30)
Sw itzerland (SMI)
Korea (KOSPI)
Netherlands (AEX)
Euro (DJ STOXX Euro 50)
-1.7%
-2.0%
US (DJ Indus.)
-2.1%
UK (FTSE 100)
-3.3%
Japan (Topix)
-3.5%
France (CAC 40)
Germany (DAX 30)
-4.0%
Japan (Nikkei 225)
-4.3%
-6%
-4%
-2%
0%
Local Currency
Source: DataStream, MSCI, Morgan Stanley Research
2%
4%
US$
6%
8%
10%
-12%
8.5%
4.8%
Singapore (MSCI)
1.2%
0.1%
0.7%
India (BSE 100)
5.3%
Hong Kong (Hang Seng)
3.4%
1.5%
3.0%
0.6%
2.1%
Japan (Nikkei 225)
9.8%
12.5%
Canada (S&P/TSX Comp.)
Spain (IBEX 35)
1.8%
Korea (KOSPI)
26.0%
23.3%
India (BSE 100)
Italy (S&P/MIB)
4.5%
4.0%
4.1%
Singapore (MSCI)
YTD price performance – Local vs. USD performance
-0.1%
-0.3%
-1.0%
-1.2%
-1.5%
8.0%
6.3%
6.2%
7.1%
5.9%
9.2%
5.0%
4.6%
4.6%
4.5%
4.5%
2.1%
4.1%
-3.7%
3.5%
0.3%
2.5%
4.3%
1.1%
-2.3%
0.6%
-2.7%
0.2%
-0.1%
1.6%
1.2%
-4.0%
-4.4%
-2.0%
-4.1%
-2%
8%
Local Currency
18%
28%
US$
47
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Australia vs. Global Peers
ASX 200 vs. S&P 500 (in US$ terms)
160
ASX 200 vs. MSCI AC Asia Pacific ex Japan (in US$ terms)
Index, Jan-2008=100 (based US$ terms)
110
Index, Jan-2008=100 (based US$ terms)
100
140
90
120
80
100
70
80
60
50
60
40
40
30
20
Jan-08
Oct-08
Jul-09
Apr-10
Jan-11
S&P 500
Oct-11
Jul-12
Apr-13
Jan-14
Oct-08
Jul-09
Apr-10
Jan-11
APxJ
S&P/ASX 200
ASX 200 vs. DM & EM (in US$ terms)
120
20
Jan-08
Oct-11
Jul-12
Apr-13
Jan-14
Apr-13
Jan-14
S&P/ASX 200
ASX 200 vs. Europe (in US$ terms)
Index, Jan-2008=100 (based US$ terms)
110
110
Index, Jan-2008=100 (based US$ terms)
100
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
Jan-08
Oct-08
Jul-09
Apr-10
Jan-11
Oct-11
Jul-12
S&P/ASX 200
DM
EM
Source: RIMES, IBES, Morgan Stanley Research
Apr-13
Jan-14
20
Jan-08
Oct-08
Jul-09
Apr-10
Jan-11
MSCI Europe
Oct-11
Jul-12
S&P/ASX 200
48
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Australian Economic Indicators
49
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Final phase of commodity boom – Australian growth to be export and housing-led
Phase 1 – price boom unwinding; gauging depth of correction
120
Index
yoy % pt
Phase 2 – engineering boom hand-over to resi and public spending
20%
f/cast
100
15%
7%
% of GDP
6%
5%
80
10%
60
5%
40
0%
4%
3%
2%
20
1990
-5%
1994
1998
GDI impact
2002
Terms of trade
2006
2010
RBA forecast
2014
0%
1980
1985
Residential
Treasury forecast
Phase 3 – Commodity exports to lift further on LNG volumes
14%
1%
1990
1995
Non-residential
2000
2005
Engineering - private
2010
Engineering - for public
Bottom line: net exports to support GDP, but domestic activity weak
% of GDP
9%
% yoy
12%
6%
10%
8%
3%
6%
4%
0%
2%
0%
1970
1974
1978
1982
Non-rural commodities
1986
1990
1994
1998
Rural commodities
Source: ABS, RBA, Morgan Stanley Research
2002
2006
Other goods
2010
2014
Services
-3%
1986
1990
1994
1998
GDP grow th
2002
2006
2010
2014
Domestic demand grow th
50
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Inflation & Monetary Policy Outlook – ‘Lower for Longer’ RBA Cash Rate
RBA has taken nominal rates to record lows, and real cash negative
Morgan Stanley growth forecasts below the RBA’s outlook
year-ended %
year-ended %
8%
4.5%
7%
4.0%
4.0%
6%
3.5%
3.5%
3.0%
3.0%
2.5%
2.5%
2.0%
2.0%
5%
4%
3%
4.5%
1.5%
1.5%
2%
1.0%
1.0%
1%
0.5%
0.5%
0%
1993
0.0%
1995
1997
RBA target
1999
2001
2003
Headline inflation
2005
2007
2009
Underlying inflation
2011
Nominal cash rate
14
% of income
10
40
8
32
6
24
2
1970
1974
1978
1982
1986
1990
1994
Debt Service* (lhs)
Source: ABS, RBA, Morgan Stanley Research
1998
2002
2006
2010
RBA - high estimate
Jun-15
Dec-15
RBA low estimate
56
48
* Interest Payments Relative to Income
** New Mortgage Repayment on Average Home / Average Income
Dec-14
RBA model of AUD notes some decoupling from fundamentals
12
4
Jun-14
MS forecast
RBA rate cuts have freed up debt service & boosted affordability
% of income
0.0%
Dec-13
2013
16
8
2014
Mortgage Burden**
51
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Household Balance Sheets – Gearing Is a Double-edged Sword
Lift in household savings rate has arrested the rise in gearing
20%
% of disposable income
% of disposable income
Recovery in balance sheets facilitates a drawdown on savings
180%
16%
150%
12%
120%
8%
90%
4%
60%
20%
% of disposable income
% of disposable income
70%
90%
16%
110%
12%
130%
150%
8%
0%
30%
-4%
1975
0%
1980
1985
1990
1995
Net household savings rate (lhs)
2000
2005
Credit to income ratio (rhs)
2010
190%
0%
1975
3m/3m ann.
1985
1990
1995
2000
2005
2010
Household net financial w orth (rhs, inverted)
MS Prudence Index shows caution increases a little into 2Q14
15
25%
210%
1980
Household savings rate (net, lhs)
Adjusted
Credit growth picking up gradually, although amortization still high
30%
170%
4%
% of income
net balance
60
12
40
20%
9
15%
20
6
10%
5%
3
0
0%
0
-5%
-20
-15%
1993
* Net balance of households nominating deposits or debt
paydow n as w isest place for savings, less those
nominating real estate or equities. Leading by 2qtrs
-3
-10%
1995
1997
1999
2001
Total
2003
2005
Housing
2007
2009
2011
Business
Source: ABS, Melbourne Institute, RBA, Westpac, Morgan Stanley Research
2013
-6
1996
1998
2000
2002
2004
Household savings rate (lhs)
2006
2008
2010
2012
-40
2014
Morgan Stanley Prudence Index (rhs)*
52
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Housing market – pickup in prices and turnover feeding into construction indicators
House prices up 15% since 2013, led by Syd (23%) and Mel (16%)
Index, 1996=100
30%
400
20%
340
10%
280
0%
220
-10%
160
House prices YTD – recovered from post-Budget pullback
Index, Jan-2013=100
125
120
115
110
105
100
-20%
1996
100
1998
2000
2002
Median house price index (rhs)
2004
2006
3m/3m % ann.
2008
2010
% yoy
2012
2014
Real house price (rhs)
Building approvals consolidating at high levels
220
'000s, annualised
95
Jan-2013
Apr-2013
Jul-2013
Sydney
Oct-2013
Jan-2014
Melbourne
Brisbane
Apr-2014
Jul-2014
Perth
Detached approvals by state – look for sustained NSW recovery
'000s, annualised
120
200
105
180
90
160
75
140
60
120
45
100
30
80
15
60
1985
0
50
'000s, 3m ann., trend
40
30
20
1989
1993
Multi-dw elling approvals (rhs)
1997
2001
2005
2009
Total building approvals (lhs)
Source: ABS, RBA, Rismark, RP Data, Morgan Stanley Research
2013
House approvals (lhs)
10
0
1985
1989
1993
1997
NSW
2001
VIC
QLD
2005
2009
2013
WA
53
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Consumption – expecting gradual recovery given weak income growth
Household income growth slowing, has cycled policy support
15
Tracking short-term sentiment indicators – housing market crucial
% yoy
90%
12
9
National Clearance Rate
Index
Federal Election
115
Budget, 13 May
80%
110
70%
105
60%
100
50%
95
40%
90
6
3
0
-3
-6
1998
2000
2002
2004
Wages
2006
Other
2008
Policy
2010
2012
30%
Mar-2011
Total
85
Sep-2011
Mar-2012
Auction Clearance Rate (lhs)
Recovery in retail sales a little overstated by sample issues
10%
2014
% yoy
Mar-2013
Sep-2013
Dw elling Prices (rhs)
Mar-2014
Consumer sentiment (rhs)
Household drawing down on savings to smooth consumption
18%
9%
Sep-2012
% yoy, nominal
16%
8%
14%
7%
12%
6%
10%
5%
8%
4%
6%
3%
4%
2%
2%
1%
0%
1995
1997
1999
2001
2003
2005
Retail sales - completely enumerated (% yoy)
Source: ABS, Morgan Stanley Research
2007
2009
2011
2013
Retail sales - headline (% yoy)
0%
1996
1998
2000
Cash savings rate
2002
2004
2006
Household income grow th
2008
2010
2012
2014
Household consumption grow th
54
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Labour market – underemployment rising after two years of weak jobs growth
Soft jobs growth, but falling participation holding u/rate around 6%
20%
17%
14%
11%
8%
5%
2%
1980
1985
1990
1995
Unemployment rate (rhs)
2000
2005
66%
12%
65%
10%
64%
8%
63%
6%
62%
4%
61%
2%
60%
1980
2010
Youth unemployment (15-24yo)
z-score
0%
1985
1990
1995
Participation rate (lhs)
MS Employment Pulse pointing to continued weak jobs growth
3
Participation back at 2006 levels; underemployment about 8%
4%
3%
1
0
2005
Underemployment rate (rhs)
2010
Unemployment rate (rhs)
Sought-after NSW jobs recovery underway, VIC now the concern
% yoy
2
2000
9%
3m/3m annualised rate, trend
6%
2%
3%
-1
1%
-2
0%
0%
-3
-4
2001
-1%
2003
2005
2007
2009
Morgan Stanley Employment Pulse (lhs, 6m lead)
Source: ABS, Morgan Stanley Research
2011
2013
Employment grow th (rhs)
-3%
2010
2011
2012
NSW
VIC
2013
QLD
2014
WA
55
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Sentiment & Capacity – Riskiest phase of transition to non-mining growth ahead
Risky phase for sentiment through tough budget
2
Consumer sentiment at average level, despite weak job certainty
z-score
130
1
Index, trend
Index, trend
80
120
100
110
120
100
140
90
160
80
180
0
-1
-2
*Business is standard deviations from long-term average of
NAB, ACCI-Westpac and PMI for Manufacturing, Services and Construction
-3
1997
1999
2001
2003
2005
Consumer sentiment
2007
2010
*Rising index suggests less employment certainty
2012
2014
200
1997
1999
2001
2003
2005
Consumer sentiment (lhs)
Business confidence
Some tradeoff in housing affordability as the ‘cost of transition’
600%
70
1995
Avg house price/household income
500%
2007
2009
2011
2013
Job uncertainty* (inverted, rhs)
Excess capacity in product and labour markets
85%
3%
84%
4%
83%
5%
82%
400%
6%
81%
7%
80%
300%
8%
79%
9%
78%
200%
100%
1960
1965
1970
1975
1980
1985
Australian dw elling price/income ratio (mean)
1990
1995
2000
LR Average
2005
2010
Post-2004 Average
Source: ABS, Westpac, Melbourne Institute, NAB, ACCI, Morgan Stanley Research
77%
10%
76%
11%
75%
1976
12%
1980
1984
1988
1992
1996
Business capacity utilisation (lhs)
2000
2004
2008
2012
Unemployment rate (rhs, inverted)
56
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Around the nation – State by State Indicators
Retail sales – sample issues create volatility in data
18%
Building approvals – Long-awaited NSW recovery underway
3m ann. trend
70
15%
'000s
60
12%
50
9%
40
6%
30
3%
0%
20
-3%
10
-6%
2006
2007
2008
2009
2010
2011
NSW
VIC
QLD
2012
2013
2014
1989
1993
WA
1997
NSW
House prices – Sydney leading the recovery, Melbourne moderating
50%
0
1985
2001
VIC
QLD
2005
2009
2013
WA
Unemployment – Solid improvement in NSW labour market
% yoy
7%
Unemployment rate, trend
40%
6%
30%
20%
5%
10%
4%
0%
3%
-10%
-20%
1997
1999
2001
Sydney
2003
2005
Melbourne
2007
2009
Brisbane/Gold Coast
Source: ABS, Rismark, RP Data, Morgan Stanley Research
2011
2013
Perth
2%
2004
2005
2006
2007
2008
NSW
2009
VIC
2010
QLD
2011
2012
2013
2014
WA
57
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Australia Macro+ Model Portfolio & Focus List
58
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Australia Macro+ Sector Preferences and Focus List
Sector View
Macro+ Sectors
--
-
=
+
++
Focus List
Other MP
Stocks
Holdings
Financials
Banks
Diversified Financials
MFG, MQG
Insurance
Real Estate
GMG, LLC
Industrials
Consumer Staples
ANZ, CBA,
WBC
Whilst Banks look fully valued as key recipients of the Hunt for Yield and general rotation of investor flows into equities, we take a neutral sector position on
a benign outlook for NPLs, combined with a likely pickup in housing credit growth. This should drive modest EPSg and DPSg and underwrite an attractive
gross yield that compares favourably with low/falling retail TD rates.
HGG
A constructive stance on the global outlook for equities, capital markets and retail risk appetite has us positively disposed to the Div Fins and wealth
management space. MFG is monetising retail brand value and an Australian rotation into global equities, while MQG has leverage to these themes, as well
as a potential return of transaction activity. HGG provides us with exposure to our house call on stronger European equities.
IAG
The positive outlook for insurance margins leaves us constructive on the domestic general insurers, with a preference for IAG on valuation and greater
upside from a benign cat season.
SGP
Challenges for Office and Retail largely offset our positive bias to Residential. LLC represents a unique play on Residential and Commercial with potential
leverage to a public-infrastructure program. We like GMG for exposure to global growth recovery and the structural migration to online retailing. SGP
provides us with further exposure to our call on domestic residential activity.
WES
Stable, steady and generally expensive, with long-tail risk of a more assertive ACCC - our growth and industrial bias leaves us underweight consumer
staples.
Consumer Non-Staples
AHE, DMP,
FLT, NVT, SUL
Including consumer services, we are positive on equities with leverage to a scenario that ultimately plays out with consumers spending more. Our current
bias is to functional discretionary capturing current consumer preferences to "do" things rather than "have" things, although we are carefully monitoring the
extent of any impact from the Budget on sentiment and activity.
Housing Linked
BSL, CSR,
DLX, JHX, REA
Accommodative monetary policy and potential fiscal influence should see a longer duration to the housing recovery than prior fits and starts. Preferring
REA as leverage to transactions and DLX as leverage to renovations. CSR enhances our domestic housing position at reasonable valuations. BSL has
utilisation leverage through its coated steel business, while JHX provides us with more global exposure.
Industrials & Transport
ALQ, BXB
AZJ
Health Care
Energy
Increased competition and falling public health spending are headwinds for sector earnings, while the sector outlook is further challenged by lofty
valuations. We buy into the investment case of SHL, which has operating and translation leverage to a lower AUD.
SHL
AGK, DUE,
TLS
Telcos, IT & Utilities
Metals & Mining
An eventual pick up in domestic activity as transition progresses offers opportunity in industrials, although we still like stock exposure to foreign sources of
earnings growth. BXB is a play on DM recovery with EM growth options. ALQ is positioned to benefit from a cyclical pick-up in drilling activity with globally
diversified revenue.
The great unwind in resources capex will take time to digest with many stocks unable to fully offset the drop in activity. The turning point where reality and
expectations collide still feels some way off, although recent data have highlighted the challenges ahead.
Capital Goods
Resources
Morgan Stanley Macro+ View
ILU
OSH, WOR
BHP, RIO
We are modestly underweight defensives, given our positive stance to equities and expectation that the East Coast Recovery strategy will ultimately be
successful. In the meantime, we note the absolute performance of TLS should be protected by its attractive gross yield relative to low cash/TD rates.
In our view, BHP represents the pick of the miners given its geographic and asset mix, leverage to cost reductions, resilient copper prices, a pickup in
global growth and potential AUD depreciation over the next two years. We see ILU at an inflection point as the supply-demand balance firms.
OSH remains our preferred resource exposure through the delivery of its high-IRR PLNG project, with additional value creation opportunities at hand. WOR
is a play on the structural rise in the capital intensity of replacement O&G volumes - particularly in the complex sub-sea and offshore space.
For important disclosures regarding companies that are the subject of this screen, please see the Morgan Stanley Research Disclosure Website at
www.morganstanley.com/researchdisclosures. Source: Company data, Morgan Stanley Research
59
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Australia Macro+ Model Portfolio (MP2) and Focus List
Sector
Com pany
Security Ticker
Financials
Banks
ANZ Banking Group
Commonw ealth Bank of Australia
Westpac Banking Corporation
Diversified Financials
Henderson Group
Macquarie Group
Magellan Financial
Insurance
Insurance Australia Group
Real Estate
Goodman Group
Lend Lease
Stockland
Industrials
Consum er Staples
Wesfarmers
Consum er Non-Staples
Automotive Holdings
Domino's Pizza
Flight Centre
Navitas
Super Retail Group
Housing Linked
Bluescope Steel
CSR
Dulux Group
REA Group
James Hardie
Industrials & Transport
ALS
Brambles
Aurizon Holdings
Capital Goods
Health Care
Sonic Healthcare
Telcos, IT & Utilities
AGL Energy
DUET Group
Telstra
ANZ
CBA
WBC
HGG
MQG
MFG
IAG
GMG
LLC
SGP
WES
AHE
DMP
FLT
NVT
SUL
BSL
CSR
DLX
REA
JHX
ALQ
BXB
AZJ
SHL
AGK
DUE
TLS
Resources
Metals & Mining
BHP Billiton
Iluka Resources
Rio Tinto
BHP
ILU
RIO
Energy
Oil Search
Worley Parsons
OSH
WOR
ASX 200 Weight (%)
MS Weight (%)
Active Weight (%)
46.1
31.0
48.4
31.4
2.3
0.4
6.7
9.8
7.7
3.6
0.2
1.4
0.1
4.6
1.1
7.0
0.6
0.5
0.7
8.7
12.3
10.4
6.5
2.2
3.2
1.1
3.2
3.2
7.4
2.7
2.5
2.2
2.0
2.5
2.6
3.0
1.9
1.9
1.0
-1.4
2.1
0.4
2.1
2.0
1.6
33.9
8.0
3.6
3.9
0.1
0.1
0.2
0.1
0.1
1.7
0.3
0.1
0.2
0.2
0.4
8.3
0.2
1.1
0.8
0.5
4.6
0.5
6.9
0.6
0.2
4.9
33.6
1.6
1.6
8.3
2.2
2.2
1.2
1.5
1.2
8.9
1.5
2.2
1.4
2.4
1.4
6.1
1.6
3.1
1.5
0.0
2.7
2.7
6.0
1.5
1.5
2.9
-0.3
-6.4
-2.0
4.4
2.2
2.1
1.1
1.4
1.1
7.2
1.2
2.1
1.3
2.2
1.0
-2.2
1.3
2.0
0.7
-0.5
-1.9
2.2
-1.0
0.9
1.3
-2.0
20.0
13.8
8.9
0.3
2.1
6.2
0.8
0.3
18.0
12.9
10.5
1.9
0.6
5.0
2.6
2.4
-2.0
-0.8
1.6
1.6
-1.5
-1.2
1.8
2.1
Price close
of 31 Jul 14
(A$)
Last
Recom m ended
Weight (%)
43.5
32.0
33.97
83.75
34.61
4.58
58.52
11.85
6.30
5.33
13.58
4.06
44.02
3.91
21.58
47.50
4.96
9.44
6.28
3.78
5.52
47.58
13.68
7.81
9.43
5.02
18.17
14.78
2.41
5.49
38.68
8.83
66.38
9.48
18.00
9.0
12.4
10.6
3.4
2.1
3.4
1.1
3.0
3.0
5.1
2.6
2.5
2.2
29.1
1.6
1.6
8.7
2.1
2.1
1.2
2.2
1.1
7.1
1.3
2.1
1.5
2.2
1.5
3.1
1.7
3.1
1.5
0.0
2.6
2.6
6.0
1.6
1.5
2.9
9.2
4.1
4.1
0.0
0.0
5.1
2.8
2.3
Focus List and Sector Preferences
--
-
=
+
++
Financials
Banks
0
0
1
0
0
Diversified Financials
0
0
0
0
1
Magellan Financial (MFG)
Macquarie Group (MQG)
Insurance
0
1
0
0
0
Real Estate
0
1
0
0
0
Goodman Group (GMG)
Lend Lease Corporation (LLC)
Industrials
Consumer Staples
1
0
0
0
0
Consumer Non-Staples
0
0
0
0
1
0
0
0
0
1
0
0
1
0
0
Automotive Holdings (AHE)
Domino's Pizza Enterprises Ltd (DMP)
Flight Centre Limited (FLT)
Navitas (NVT)
Super Retail Group Ltd (SUL)
Housing Linked
Bluescope Steel (BSL)
DuluxGroup (DLX)
CSR Group (CSR)
James Hardie (JHX)
REA Group Limited (REA)
Industrials & Transport
ALS Ltd (ALQ)
Brambles Ltd (BXB)
Capital Goods
1
0
0
0
0
Health Care
0
1
0
0
0
0
1
0
1
0
0
0
0
1
0
0
0
Sonic Healthcare (SHL)
Telcos, IT & Utilities
Resources
Metals & Mining
Iluka Resources (ILU)
Energy
Oil Search Ltd (OSH)
WorleyParsons Ltd (WOR)
"++" = Most Attractive; "--" = Least Attractive; "=" = Neutral
For important disclosures regarding companies that are the subject of this screen, please see the Morgan Stanley Research Disclosure Website at
www.morganstanley.com/researchdisclosures. Source: Company data, Morgan Stanley Research
60
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Australia Model Portfolio and Macro+ Focus List
Rating
Company name
Ticker
Mkt Cap
20D ADV
(A$ mil)
(A$ mil)
8,189
35
Latest
MS Price
Rev. Grwth
Div Yld
Consensus 1
Price
Target
MS Bull Case
Consensus*
MS
Consensus
2015E
2014E
2014E
2015E
2014E
2015E
(Buy/Hold/Sell)
(A$)
(A$)
(%)
(%)
(%)
(%)
(%)
(%)
(bps)
(bps)
(bps)
(bps)
NC
3 /9 /1
14.63
NC
NC
7%
NC
5%
0%
4.3%
-69
26
-47
26
MS
Up/downside to
EPS 3Y CAGR
∆ ROE
∆ ROA
AGL Energy
AGK
Automotive Holdings
AHE
F
1,171
2
O
9 /5 /0
3.82
4.50
59%
12%
12%
9%
14%
5.6%
-158
155
-168
78
ALS Ltd
ALQ
F
3,057
17
E
1 / 5 / 11
7.69
9.01
61%
-6%
-4%
-8%
10%
4.5%
-1067
-128
-802
-64
ANZ Bank
ANZ
92,194
168
E
11 / 6 / 3
33.45
33.50
14%
5%
7%
7%
5%
5.2%
-2
-9
-4
-2
Aurizon Holdings
AZJ
10,729
24
O
11 / 6 / 1
5.02
5.49
20%
8%
14%
16%
3%
3.3%
77
169
62
133
BHP Billiton Plc
BHP
200,868
272
O
13 / 8 / 1
38.32
44.00
39%
7%
6%
3%
2%
3.4%
94
-239
70
-101
BlueScope Steel
BSL
F
3,443
17
E
8 /4 /2
6.16
6.15
22%
15%
114%
128%
7%
0.4%
235
208
174
139
Brambles Ltd.
BXB
F
14,509
37
O
10 / 6 / 2
9.28
10.20
28%
6%
12%
4%
4%
2.9%
64
-135
141
-25
Commonwealth Bk Aust
CBA
134,067
217
O
4 / 10 / 5
82.69
87.20
12%
-3%
8%
7%
5%
4.8%
82
-52
-1
-2
CSR Group
CSR
1,898
9
O
5 /7 /3
3.75
3.92
52%
-3%
59%
59%
10%
2.9%
428
323
223
199
F
DuluxGroup
DLX
F
2,102
8
U
3 /8 /3
5.48
5.74
47%
5%
13%
12%
5%
3.7%
-472
-310
116
73
Domino's Pizza Enterprises Lim
DMP
F
1,826
4
O
4 /8 /3
21.25
22.80
39%
-6%
25%
22%
24%
1.8%
-638
-274
-764
-225
DUET Group
DUE
3,169
14
O
5 /7 /3
2.41
2.49
35%
-4%
89%
17%
5%
7.1%
192
-117
-248
10
Flight Centre Limited
FLT
F
4,712
22
O
12 / 7 / 1
46.85
58.00
39%
10%
12%
11%
7%
3.3%
-141
-18
186
25
Goodman Group
GMG
F
Henderson Group
HGG
Insurance Australia
IAG
Iluka Resources
ILU
F
9,010
16
O
8 /5 /2
5.22
5.50
30%
2%
8%
7%
3%
4.0%
10
30
13
12
5,076
15
O
8 /3 /0
4.48
5.08
66%
5%
11%
102%
32%
0.5%
277
1603
155
1458
14,506
50
E
6 /9 /2
6.20
6.10
6%
-3%
-1%
0%
18%
5.5%
-152
-440
28
-71
3,657
21
O
10 / 2 / 3
8.74
10.10
49%
14%
167%
70%
41%
2.1%
-403
1088
-338
856
410
145
James Hardie
JHX
F
5,986
23
O
6 /4 /4
13.44
16.34
78%
11%
31%
34%
8%
5.6%
1765
Lend Lease Corporation
LLC
F
7,724
23
O
8 /6 /2
13.38
13.30
23%
0%
4%
7%
5%
4.8%
165
-301
68
-89
Magellan Financial Group
MFG
F
1,895
5
O
5 /3 /0
11.33
16.00
75%
22%
29%
43%
36%
3.0%
1811
870
932
591
Macquarie Group Limited
MQG
F
18,486
75
E
7 /9 /1
57.53
60.00
19%
2%
23%
22%
8%
4.6%
323
106
28
-7
Navitas Limited
NVT
F
1,871
14
E
2 / 10 / 0
4.98
5.30
77%
3%
13%
17%
12%
3.8%
232
670
-120
340
Oil Search Ltd.
OSH
F
14,271
38
O
12 / 3 / 3
9.40
9.90
44%
12%
57%
59%
44%
0.7%
619
457
395
326
REA Group Limited
REA
F
6,079
14
O
6 /7 /2
46.15
50.00
47%
-1%
31%
30%
22%
1.2%
305
50
137
98
Rio Tinto Plc
RIO
115,509
134
E
16 / 2 / 1
65.25
68.50
36%
12%
-2%
2%
7%
3.4%
44
-32
722
-453
15
Stockland Group
SGP
9,320
29
O
6 /4 /1
4.01
4.10
23%
2%
8%
7%
11%
5.9%
67
35
96
Sonic Healthcare Limited
SHL
F
7,243
21
O
9 /5 /3
18.07
17.80
23%
-3%
15%
12%
7%
3.8%
65
57
-32
5
Super Retail Group
SUL
F
1,841
8
E
10 / 10 / 2
9.36
9.40
17%
1%
6%
5%
5%
3.9%
-227
61
-277
54
-38
Telstra Corporation
TLS
67,566
121
U
6 / 12 / 3
5.43
4.80
9%
-3%
5%
-1%
5.4%
-40
-97
168
Westpac Banking
WBC
105,645
171
E
4 / 12 / 4
33.98
35.80
13%
4%
6%
5%
5%
5.4%
38
11
-3
0
Wesfarmers
WES
49,470
82
E
4 /9 /4
43.27
42.00
7%
-1%
8%
8%
4%
4.6%
85
53
13
57
WorleyParsons Ltd.
WOR
4,350
20
O
5 / 10 / 1
17.63
19.01
44%
1%
2%
1%
1%
4.4%
-450
156
-208
99
F
1. Consensus rating (Buy/Hold/Sell) is sourced from Bloomberg. * Median I/B/E/S consensus price target. ^ 12 mth fw d PE relative to S&P/ASX 200 relative to 10Y average or available history. NC = not covered
Note: Unless othew ise noted, all metrics are based on consensus estimates. Stock pricing as of the 01/08/14
For important disclosures regarding companies that are the subject of this screen, please see the Morgan Stanley Research Disclosure Website at
www.morganstanley.com/researchdisclosures. Source: Company data, Morgan Stanley Research
61
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Australia Model Portfolio and Macro+ Focus List – Valuations
Ticker
Company
Stock
Market Cap
Last
Price
Rating
A$m
Price
Target
2013
2014 E
P/E
2015 E
2016 E
2013
2014 E
EV/EBITDA
2015 E
2016 E
2014 E
P/BV
2015 E
2014 E
Dividend Yield
A$m
A$
A$
(x)
(x)
(x)
(x)
(x)
(x)
(x)
(x)
(x)
(x)
(%)
(%)
NC
8,189
14.63
NC
13.4
14.5
13.7
11.6
8.0
19.0
18.2
16.2
1.1
1.1
4.3%
4.4%
2015 E
AGK
AGL Energy
AHE
Automotive Holdings
F
O
1,171
3.82
4.50 (+15%)
11.5
12.7
11.2
9.9
9.2
11.1
8.9
8.1
1.7
1.8
5.9%
6.4%
ALQ
ALS Ltd
F
E
3,057
7.69
9.01 (+15%)
14.9
17.0
15.9
12.7
9.9
10.7
9.5
7.9
2.0
2.0
5.3%
4.4%
ANZ
ANZ Bank
E
92,194
33.45
33.50 (-1%)
12.9
13.2
12.5
11.6
10.2
10.2
9.6
8.8
1.9
1.8
5.2%
5.5%
AZJ
Aurizon Holdings
O
10,729
5.02
5.49 (+9%)
19.2
20.1
18.3
15.9
9.0
9.6
8.9
8.0
1.6
1.6
3.2%
3.8%
BHP
BHP Billiton Plc
O
200,868
38.32
44.00 (+14%)
14.1
13.0
16.4
14.7
6.4
6.6
7.6
6.9
2.3
2.3
3.6%
3.6%
BSL
BlueScope Steel
F
E
3,443
6.16
6.15 (+1%)
87.8
25.6
14.3
11.7
7.6
5.6
4.5
4.0
0.7
0.8
0.6%
2.1%
BXB
Brambles Ltd.
F
O
14,509
9.28
10.20 (+8%)
22.1
21.8
19.8
17.3
10.8
10.6
10.1
9.2
5.0
4.7
3.2%
3.5%
CBA
Commonwealth Bk Aust
O
134,067
82.69
87.20 (+4%)
14.3
15.1
14.8
13.8
11.1
11.6
11.1
10.4
2.6
2.6
5.0%
5.1%
CSR
CSR Group
F
O
1,898
3.75
3.92 (+4%)
31.9
24.7
16.1
14.4
7.0
9.2
7.3
6.4
1.6
1.6
2.8%
4.4%
DLX
DuluxGroup
F
U
2,102
5.48
5.74 (+4%)
20.4
18.3
15.9
14.7
12.9
11.3
10.0
9.1
6.9
5.8
3.7%
4.2%
DMP
Domino's Pizza Enterprises Limited
F
O
1,826
21.25
22.80 (+6%)
25.1
36.9
29.9
25.2
14.0
20.9
14.2
11.9
6.6
6.1
1.8%
2.1%
DUE
DUET Group
O
3,169
2.41
2.49 (+3%)
117.3
27.7
23.9
20.7
11.3
10.7
10.3
9.9
2.2
2.3
7.0%
7.3%
FLT
Flight Centre Limited
F
O
4,712
46.85
58.00 (+22%)
16.4
16.6
15.9
14.3
7.1
7.2
6.7
5.7
4.2
4.1
3.8%
4.1%
GMG
Goodman Group
F
O
9,010
5.22
5.50 (+3%)
15.0
14.4
14.1
13.0
16.8
15.3
14.5
13.2
1.5
1.5
4.1%
4.2%
HGG
Henderson Group
O
5,076
4.48
280.00 (+15%)
14.3
14.8
13.0
11.1
14.0
14.0
12.0
10.1
2.6
2.4
3.6%
4.0%
IAG
Insurance Australia
E
14,506
6.20
6.10 (-3%)
10.1
10.6
13.2
12.1
7.9
8.5
9.8
9.1
2.0
2.1
6.3%
4.9%
2.5
2.5
1.2%
3.6%
ILU
Iluka Resources
F
O
3,657
8.74
10.10 (+14%)
194.6
40.0
10.5
18.2
28.3
10.7
5.1
JHX
James Hardie
F
O
5,986
13.44
16.34 (+19%)
30.5
29.4
23.5
17.7
17.0
18.1
14.7
11.4
LLC
Lend Lease Corporation
F
O
7,724
13.38
13.30 (-2%)
8.7
9.3
12.9
12.5
7.7
6.7
9.8
9.4
MFG
Magellan Financial Group
F
O
1,895
11.33
16.00 (+35%)
22.1
20.0
14.2
12.8
16.5
16.1
10.1
8.5
8.2
7.1
3.0%
4.4%
MQG
Macquarie Group Limited
F
E
18,486
57.53
60.00 (+3%)
13.5
14.0
12.0
11.5
10.4
10.2
9.1
8.7
1.6
1.6
4.5%
5.1%
NVT
Navitas Limited
F
E
1,871
4.98
5.30 (+7%)
29.0
34.5
19.4
17.5
17.4
19.4
11.5
10.5
12.5
8.0
2.7%
4.1%
OSH
Oil Search Ltd.
F
O
14,271
9.40
9.90 (+4%)
47.0
26.4
17.2
14.8
30.9
13.6
9.4
8.4
2.6
2.3
0.5%
1.5%
REA
REA Group Limited
F
O
6,079
46.15
50.00 (+5%)
33.1
36.7
30.9
25.7
20.6
23.0
19.4
16.1
13.6
11.6
1.4%
1.6%
RIO
Rio Tinto Plc
E
115,509
65.25
68.50 (+3%)
11.0
13.4
13.3
11.9
7.1
7.5
7.1
6.4
2.3
2.1
3.5%
3.9%
SGP
Stockland Group
O
9,320
4.01
4.10 (+1%)
15.6
16.3
15.4
14.5
19.3
20.3
17.4
16.0
1.1
1.1
6.2%
5.9%
1.8
1.7
6.7%
4.8%
5.4%
4.1%
SHL
Sonic Healthcare Limited
F
O
7,243
18.07
17.80 (-2%)
17.5
17.2
15.4
14.2
11.9
11.3
10.4
9.7
2.3
2.3
4.3%
4.8%
SUL
Super Retail Group
F
E
1,841
9.36
9.40 (%)
20.8
15.6
16.2
13.7
11.4
9.0
9.0
7.7
1.9
2.1
4.1%
4.0%
TLS
Telstra Corporation
U
67,566
5.43
4.80 (-13%)
15.1
16.2
16.6
16.0
6.8
6.9
7.2
6.9
5.1
5.2
5.6%
5.5%
WBC
Westpac Banking
E
105,645
33.98
35.80 (+3%)
14.3
14.1
13.5
12.7
10.5
10.4
9.9
9.4
2.2
2.1
5.3%
5.5%
WES
Wesfarmers
E
49,470
43.27
42.00 (-5%)
20.3
19.9
19.7
17.6
10.6
10.7
10.9
9.9
1.9
1.9
4.6%
4.6%
WOR
WorleyParsons Ltd.
O
4,350
17.63
19.01 (+6%)
15.2
18.2
13.9
13.3
9.0
9.6
7.8
7.4
2.0
1.9
4.6%
5.4%
F
**Stock pricing as of the 01/08/14. NC = Not Covered. Mean IBES concensus forecasts used for AGK
E = Morgan Stanley Research estimates For important disclosures regarding companies that are the subject of this screen, please see the Morgan Stanley Research Disclosure
Website at www.morganstanley.com/researchdisclosures. Source: Company data, Morgan Stanley Research
62
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Australia Model Portfolio and Macro+ Focus List – Operating Metrics
Ticker
AGK
Company
AGL Energy
Stock
Market Cap
Rating
A$m
2013
2014 E
EBITDA Margin
2015 E
2016 E
2014 E
EPS Growth
2015 E
2016 E
3Y CAGR
Sales
2013
2014 E
ROIC (pre-tax)
2015 E
2016 E
2014 E
Gearing (ND/E)
2015 E
A$m
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
NC
8,189
14.2%
13.3%
13.9%
15.1%
-7.1%
5.9%
16.9%
2.2%
AHE
Automotive Holdings
F
O
1,171
3.9%
4.0%
4.3%
4.6%
3.2%
21.5%
12.5%
8.0%
7.6%
6.5%
8.2%
8.9%
143.1%
130.3%
ALQ
ALS Ltd
F
E
3,057
27.6%
21.8%
23.8%
25.8%
-37.5%
13.4%
25.0%
8.4%
15.9%
7.5%
8.8%
10.3%
51.0%
48.5%
ANZ
ANZ Bank
E
92,194
51.9%
53.1%
54.0%
55.4%
9.4%
4.2%
8.9%
6.3%
14.2%
14.5%
14.4%
14.7%
1.8%
1.7%
AZJ
Aurizon Holdings
O
10,729
33.2%
37.0%
39.4%
40.6%
13.3%
12.6%
18.5%
5.4%
6.3%
6.4%
7.2%
8.1%
37.7%
40.8%
BHP
BHP Billiton Plc
O
200,868
43.2%
46.4%
44.1%
45.7%
27.9%
-16.0%
11.9%
2.5%
13.8%
13.8%
11.5%
12.1%
32.2%
29.4%
BSL
BlueScope Steel
F
E
3,443
5.6%
7.5%
9.1%
9.3%
298.2%
100.0%
22.8%
8.1%
1.4%
3.8%
6.3%
6.8%
3.3%
-2.1%
BXB
Brambles Ltd.
F
O
14,509
26.3%
26.6%
27.7%
28.8%
9.5%
17.2%
14.5%
5.7%
12.9%
13.2%
14.4%
15.3%
89.2%
84.6%
CBA
Commonwealth Bk Aust
O
134,067
54.4%
55.8%
56.5%
57.6%
11.1%
5.7%
7.2%
6.7%
17.1%
17.6%
17.6%
18.0%
1.9%
1.8%
CSR
CSR Group
O
1,898
9.5%
11.5%
13.6%
13.8%
120.2%
65.1%
11.4%
6.9%
5.5%
8.2%
10.5%
10.4%
-3.4%
-10.8%
DLX
DuluxGroup
F
U
2,102
12.7%
13.6%
14.2%
14.6%
16.8%
14.8%
8.7%
5.8%
16.6%
19.4%
21.4%
23.2%
100.9%
66.9%
DMP
Domino's Pizza Enterprises Limited
F
O
1,826
18.7%
16.3%
17.1%
18.2%
34.0%
24.2%
18.8%
38.6%
21.2%
12.7%
17.0%
19.3%
38.6%
28.3%
O
3,169
52.4%
66.5%
67.6%
67.8%
410.3%
15.6%
15.1%
0.2%
4.2%
5.3%
5.6%
6.0%
367.9%
404.6%
O
4,712
19.6%
18.9%
19.5%
20.0%
11.9%
11.8%
11.0%
9.3%
22.1%
24.1%
24.4%
24.5%
-134.3%
-137.8%
F
DUE
DUET Group
FLT
Flight Centre Limited
F
GMG
Goodman Group
F
HGG
Henderson Group
IAG
Insurance Australia
ILU
Iluka Resources
F
JHX
James Hardie
F
LLC
Lend Lease Corporation
F
O
7,724
6.1%
11.2%
7.3%
MFG
Magellan Financial Group
F
O
1,895
78.7%
74.5%
78.5%
MQG
Macquarie Group Limited
F
E
18,486
21.1%
25.9%
27.7%
NVT
Navitas Limited
F
E
1,871
17.8%
17.5%
18.7%
OSH
Oil Search Ltd.
F
O
14,271
57.3%
70.4%
REA
REA Group Limited
F
O
6,079
48.7%
52.4%
O
9,010
69.7%
100.4%
102.3%
104.1%
8.1%
7.8%
7.9%
-3.5%
6.2%
6.9%
7.3%
7.6%
28.4%
25.4%
O
5,076
41.1%
39.3%
41.0%
43.4%
4.2%
13.8%
16.9%
11.6%
18.2%
16.1%
16.5%
17.2%
-11.4%
-10.3%
E
14,506
19.5%
20.3%
15.9%
16.7%
2.1%
-13.8%
9.2%
8.5%
19.6%
16.1%
14.6%
15.1%
25.2%
24.9%
O
3,657
27.4%
20.1%
36.5%
50.4%
-349.0%
300.1%
281.2%
23.5%
1.1%
-1.2%
7.1%
18.8%
25.0%
17.1%
O
5,986
18.4%
21.1%
22.8%
25.8%
38.8%
21.4%
32.4%
14.7%
-
-
-
-
60.6%
-28.6%
7.3%
46.0%
-25.2%
3.4%
3.7%
7.3%
12.4%
8.0%
8.1%
-4.1%
14.2%
78.2%
24.8%
54.8%
17.7%
28.5%
43.5%
40.8%
50.0%
49.1%
-27.5%
-40.0%
26.8%
50.1%
18.8%
3.3%
11.7%
8.2%
12.4%
13.3%
13.2%
4.1%
3.9%
19.3%
18.1%
22.6%
16.2%
13.2%
20.7%
24.4%
32.1%
38.6%
18.3%
-6.9%
70.0%
70.8%
117.1%
53.9%
15.9%
53.4%
2.7%
7.1%
9.0%
9.9%
68.8%
53.9%
55.9%
58.1%
39.6%
32.3%
20.5%
22.0%
32.2%
35.1%
35.5%
33.3%
-82.6%
-83.1%
RIO
Rio Tinto Plc
E
115,509
38.2%
39.4%
39.0%
40.1%
-16.9%
1.3%
11.0%
1.4%
7.0%
12.5%
12.2%
12.8%
42.4%
36.8%
SGP
Stockland Group
O
9,320
31.0%
32.8%
35.3%
36.3%
6.3%
10.8%
6.3%
7.8%
3.5%
3.6%
4.2%
4.5%
36.5%
36.0%
SHL
Sonic Healthcare Limited
F
O
7,243
18.5%
19.0%
19.6%
19.8%
19.0%
17.1%
8.2%
9.3%
7.2%
8.6%
9.7%
10.2%
50.1%
46.3%
SUL
Super Retail Group
F
E
1,841
11.6%
10.9%
11.3%
12.1%
-5.8%
7.5%
18.1%
4.7%
17.1%
14.4%
14.8%
16.3%
107.2%
104.0%
TLS
Telstra Corporation
U
67,566
40.9%
42.2%
43.5%
43.6%
2.1%
3.1%
3.3%
-0.3%
16.1%
16.4%
15.9%
15.8%
75.0%
75.3%
WBC
Westpac Banking
E
105,645
56.9%
57.4%
57.8%
58.4%
8.4%
4.6%
6.3%
5.2%
15.0%
15.6%
15.6%
15.8%
0.0%
0.0%
WES
Wesfarmers
E
49,470
7.9%
7.7%
7.7%
8.1%
7.2%
6.3%
11.9%
3.7%
11.1%
11.6%
11.9%
12.8%
42.3%
45.7%
WOR
WorleyParsons Ltd.
O
4,350
8.1%
6.8%
8.3%
8.4%
-25.0%
35.4%
4.2%
1.7%
11.1%
8.6%
10.8%
10.8%
29.2%
23.2%
F
** Stock pricing as of the 01/08/14. NC = Not Covered. Mean IBES concensus forecasts used for AGK
E = Morgan Stanley Research estimates For important disclosures regarding companies that are the subject of this screen, please see the Morgan Stanley Research Disclosure
Website at www.morganstanley.com/researchdisclosures. Source: Company data, Morgan Stanley Research
63
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Australia Model Portfolio and Macro+ Focus List – Performance
Ticker
Company
Stock
Market Cap
Last
Price
Rating
A$m
Price
Target
Absolute Performance
A$m
A$
A$
(%)
(%)
(%)
(%)
(%)
NC
8,189
14.63
NC
-4.2%
-5.3%
-0.8%
4.1%
0.3%
1 Mth
3 Mth
6 Mth
12 Mth
Relative Performance
YTD
Since
Inception
1 Mth
(%)
(%)
(%)
(%)
(%)
(%)
3.0%
-9.0%
-9.6%
-11.7%
-12.2%
-7.2%
-10.0%
3 Mth
6 Mth
12 Mth
YTD
Since
Inception
AGK
AGL Energy
AHE
Automotive Holdings
F
O
1,171
3.82
4.50 (+15%)
6.3%
0.0%
6.5%
10.6%
5.7%
2.6%
1.5%
-4.3%
-4.4%
-5.7%
-1.9%
-2.4%
ALQ
ALS Ltd
F
E
3,057
7.69
9.01 (+15%)
-12.8%
5.0%
0.8%
-3.5%
-9.1%
-6.1%
-17.6%
0.7%
-10.2%
-19.9%
-16.7%
-10.5%
ANZ
ANZ Bank
E
92,194
33.45
33.50 (-1%)
3.4%
2.1%
15.5%
21.5%
8.0%
15.2%
-1.3%
-2.2%
4.6%
5.2%
0.4%
2.2%
AZJ
Aurizon Holdings
O
10,729
5.02
5.49 (+9%)
0.8%
-2.3%
3.7%
13.4%
4.5%
8.4%
-4.0%
-6.6%
-7.3%
-2.9%
-3.1%
-4.6%
BHP
BHP Billiton Plc
O
200,868
38.32
44.00 (+14%)
7.4%
3.1%
7.5%
13.7%
3.5%
9.8%
2.7%
-1.2%
-3.4%
-2.7%
-4.1%
-3.1%
BSL
BlueScope Steel
F
E
3,443
6.16
6.15 (+1%)
11.9%
0.3%
16.3%
15.9%
7.9%
21.5%
7.2%
-4.0%
5.4%
-0.5%
0.3%
21.5%
BXB
Brambles Ltd.
F
-2.5%
CBA
Commonwealth Bk Aust
CSR
CSR Group
F
O
14,509
9.28
10.20 (+8%)
2.4%
-0.4%
6.2%
14.4%
4.5%
10.5%
-2.4%
-4.7%
-4.8%
-1.9%
-3.0%
O
134,067
82.69
87.20 (+4%)
4.7%
6.5%
15.3%
19.8%
10.0%
15.7%
-0.1%
2.2%
4.4%
3.5%
2.4%
2.7%
O
1,898
3.75
3.92 (+4%)
6.5%
7.3%
31.2%
75.6%
44.5%
23.2%
1.7%
3.0%
20.2%
59.2%
37.0%
23.2%
DLX
DuluxGroup
F
U
2,102
5.48
5.74 (+4%)
-2.5%
-1.4%
5.0%
26.7%
4.9%
3.7%
-7.3%
-5.7%
-5.9%
10.4%
-2.7%
-9.3%
DMP
Domino's Pizza Enterprises Limited
F
O
1,826
21.25
22.80 (+6%)
-1.9%
8.9%
33.9%
92.8%
34.6%
42.3%
-6.7%
4.6%
23.0%
76.5%
27.0%
42.3%
DUE
DUET Group
O
3,169
2.41
2.49 (+3%)
0.4%
15.0%
19.4%
19.4%
24.7%
1.2%
-4.4%
10.7%
8.4%
3.1%
17.2%
-3.1%
FLT
Flight Centre Limited
F
O
4,712
46.85
58.00 (+22%)
4.4%
-9.9%
1.2%
6.6%
1.1%
8.4%
-0.4%
-14.2%
-9.7%
-9.8%
-6.5%
-4.5%
GMG
Goodman Group
F
HGG
Henders on Group
O
9,010
5.22
5.50 (+3%)
5.3%
10.0%
16.3%
18.1%
14.9%
19.3%
0.5%
5.7%
5.4%
1.7%
7.3%
6.3%
O
5,076
4.48
280.00 (+15%)
3.2%
130.8%
147.2%
333.8%
148.9%
6.5%
-1.6%
126.4%
136.2%
317.5%
141.4%
2.2%
IAG
Ins urance Aus tralia
E
14,506
6.20
6.10 (-3%)
9.2%
10.7%
17.1%
15.0%
10.5%
13.2%
4.4%
6.4%
6.2%
-1.4%
2.9%
0.2%
ILU
Iluka Res ources
F
O
3,657
8.74
10.10 (+14%)
6.4%
0.6%
1.0%
-21.7%
2.8%
-6.0%
1.6%
-3.7%
-9.9%
-38.0%
-4.8%
-11.6%
JHX
James Hardie
F
O
5,986
13.44
16.34 (+19%)
-1.4%
3.8%
12.2%
57.9%
11.9%
-0.8%
-6.2%
-0.5%
1.3%
41.6%
4.3%
-5.1%
LLC
Lend Lease Corporation
F
O
7,724
13.38
13.30 (-2%)
4.1%
7.9%
31.1%
55.7%
23.9%
30.9%
-0.6%
3.6%
20.1%
39.4%
16.3%
30.9%
MFG
Magellan Financial Group
F
O
1,895
11.33
16.00 (+35%)
8.4%
-3.8%
6.5%
6.7%
11.6%
5.7%
3.6%
-8.1%
-4.4%
-9.6%
4.0%
-4.4%
MQG
Macquarie Group Limited
F
E
18,486
57.53
60.00 (+3%)
-0.8%
3.3%
11.1%
42.9%
9.4%
16.5%
-5.6%
-1.0%
0.2%
26.5%
1.8%
3.6%
NVT
Navitas Limited
F
E
1,871
4.98
5.30 (+7%)
-30.8%
-31.8%
-25.2%
-15.3%
-21.4%
-13.1%
-35.6%
-36.1%
-36.2%
-31.7%
-29.0%
-26.0%
OSH
Oil Search Ltd.
F
O
14,271
9.40
9.90 (+4%)
-1.9%
7.1%
18.3%
17.1%
17.1%
18.3%
-6.7%
2.8%
7.4%
0.8%
9.6%
5.3%
REA
REA Group Limited
F
O
6,079
46.15
50.00 (+5%)
12.0%
3.3%
17.6%
46.0%
26.6%
16.7%
7.2%
-1.0%
6.7%
29.7%
19.0%
3.7%
RIO
Rio Tinto Plc
E
115,509
65.25
68.50 (+3%)
9.8%
9.2%
3.0%
18.2%
-0.9%
2.8%
5.0%
4.9%
-8.0%
1.9%
-8.5%
-7.4%
SGP
Stockland Group
O
9,320
4.01
4.10 (+1%)
5.2%
7.7%
15.2%
25.9%
15.8%
7.5%
0.4%
3.4%
4.2%
9.6%
8.2%
-5.4%
SHL
Sonic Healthcare Limited
F
O
7,243
18.07
17.80 (-2%)
5.0%
4.4%
11.7%
30.2%
11.2%
16.8%
0.2%
0.1%
0.8%
13.8%
3.6%
3.9%
SUL
Super Retail Group
F
E
1,841
9.36
9.40 (%)
10.9%
-5.3%
-10.1%
-22.1%
-27.6%
-24.6%
6.1%
-9.6%
-21.1%
-38.5%
-35.2%
-37.6%
TLS
Telstra Corporation
U
67,566
5.43
4.80 (-13%)
5.4%
5.6%
9.6%
15.0%
7.3%
13.6%
0.6%
1.3%
-1.3%
-1.3%
-0.2%
0.7%
WBC
Westpac Banking
E
105,645
33.98
35.80 (+3%)
3.7%
2.3%
15.0%
18.2%
9.7%
14.6%
-1.1%
-2.0%
4.1%
1.9%
2.1%
1.6%
WES
Wesfarmers
E
49,470
43.27
42.00 (-5%)
6.0%
3.0%
6.8%
13.8%
1.9%
8.7%
1.2%
-1.3%
-4.1%
-2.5%
-5.7%
-4.2%
WOR
WorleyParsons Ltd.
O
4,350
17.63
19.01 (+6%)
3.0%
9.2%
11.5%
-14.6%
10.5%
18.5%
-1.8%
4.9%
0.6%
-30.9%
2.9%
5.6%
4.8%
4.3%
10.9%
16.3%
7.6%
3.9%
S&P/SASX 200 Accumulation Index
F
** Performance close as of 31/07/14. Since inception relative performance calculated against the benchmark return since inclusion in model portfolio
E = Morgan Stanley Research estimates Past performance is no guarantee of future results. Results shown do not include transaction costs.For important disclosures regarding companies that are the subject of this screen, please see the
Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures. Source: Company data, Morgan Stanley Research
64
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Australian & Global Economic Forecasts
65
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Australian Economic Forecasts
2013
Quarterly
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14e
3Q14e
4Q14e
1Q15e
2Q15e
3Q15e
4Q15e
% qoq
% yoy
0.3
2.1
0.9
2.4
0.7
2.3
0.8
2.7
1.1
3.5
0.5
3.1
0.4
2.8
0.7
2.7
0.7
2.2
0.7
2.5
0.6
2.7
0.6
2.7
% qoq
% yoy
% qoq
0.3
1.6
1.1
0.7
1.8
0.2
0.7
2.2
0.9
0.8
2.5
0.4
0.5
2.8
0.3
0.5
2.5
0.3
0.5
2.3
0.3
0.6
2.1
0.4
0.7
2.3
0.5
0.7
2.5
0.6
0.8
2.8
0.7
0.8
3.0
0.7
% yoy
0.4
-0.3
1.5
2.6
1.9
1.9
1.3
1.4
1.5
1.8
2.2
2.5
% qoq
% yoy
% qoq
% yoy
% qoq
% yoy
0.5
1.3
-1.2
-0.2
0.5
2.0
0.6
1.3
2.2
4.2
0.5
-0.9
0.8
2.0
-0.8
2.1
-0.9
-4.0
0.7
2.5
1.7
1.8
-3.6
-3.5
0.5
2.5
4.7
8.0
-0.4
-4.3
0.5
2.4
1.5
7.2
-2.0
-6.7
0.5
2.1
3.0
11.3
-2.5
-8.3
0.6
1.9
3.0
12.7
-2.5
-7.2
0.7
2.1
3.0
10.9
-3.3
-9.9
0.7
2.3
2.0
11.5
-3.2
-11.0
0.8
2.7
1.5
9.8
-2.6
-11.0
0.8
2.9
0.8
7.5
-2.2
-10.8
% qoq
% yoy
-14.1
-6.4
-2.1
-11.0
0.3
1.9
3.9
-12.3
-5.0
-3.0
1.0
0.1
1.3
1.1
1.3
-1.4
1.2
4.9
1.1
5.0
1.0
4.7
1.0
4.4
% qoq
-2.5
0.8
-0.5
-1.1
0.0
-0.6
-0.6
-0.5
-0.9
-1.1
-0.8
-0.7
% yoy
0.1
-1.1
-1.2
-3.3
-0.8
-2.2
-2.3
-1.7
-2.6
-3.0
-3.2
-3.4
Gross national expenditure
% qoq
% yoy
-0.6
0.0
0.8
0.5
0.0
0.2
0.5
0.6
-0.3
0.9
0.5
0.6
0.2
0.9
0.4
0.7
0.3
1.3
0.3
1.2
0.4
1.4
0.5
1.5
Net export contribution
qtr % pt
yr % pt
0.9
2.1
0.1
1.4
0.9
1.8
0.4
2.2
1.4
2.7
0.0
2.6
0.2
2.0
0.3
1.9
0.4
0.9
0.4
1.4
0.2
1.4
0.2
1.3
Real GDP by expenditure
Real GDP growth
Household consumption
Government consumption
Total Consumption
Private dwelling investment
Private business investment
Public investment
Total Investment
Nominal growth, inflation, unemployment & policy rates
Nominal GDP growth
qtr % pt
yr % pt
0.9
2.9
1.2
2.9
0.8
3.7
1.6
4.6
1.1
4.9
0.4
4.0
0.3
3.4
0.8
2.6
1.1
2.6
1.1
3.3
1.1
4.1
1.1
4.4
CPI (headline)
% qoq
% yoy
0.4
2.5
0.4
2.4
1.2
2.2
0.8
2.7
0.6
2.9
0.4
3.0
0.6
2.3
0.1
1.7
0.5
1.6
0.6
1.8
0.8
2.1
0.5
2.5
CPI (underlying)
% qoq
% yoy
0.4
2.4
0.6
2.4
0.6
2.3
0.9
2.6
0.5
2.7
0.4
2.4
0.7
2.5
0.2
1.9
0.7
2.1
0.5
2.2
0.8
2.3
0.5
2.6
Unemployment rate
%, eop
5.6
5.7
5.7
5.9
5.8
5.9
6.0
6.1
6.1
6.2
6.1
6.1
RBA target rate
%, eop
3.00
2.75
2.50
2.50
2.50
2.50
2.50
2.50
2.50
2.50
2.50
2.75
Source: ABS, Morgan Stanley Research Estimates
66
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Commodity Price Forecasts vs Consensus
Base Metals
Aluminium
Copper
Nickel
Zinc
Lead
Tin
Alumina
Precious Metals
Gold
Silver
Platinum
Palladium
Bulks
Iron Ore
Coking Coal
Thermal Coal
Other Metals
Uranium
Unit
MS
2H14e
Market
2H14
% Diff
MS
CY15e
Market
CY15
% Diff
MS
LT
Market
LT
% Diff
US$/t
US$/t
US$/t
US$/t
US$/t
US$/t
US$/t
1,863
7,055
18,684
2,194
2,194
23,424
317
1,844
6,796
18,499
2,109
2,184
23,382
323
1%
4%
1%
4%
0%
0%
-2%
1,913
7,397
19,346
2,348
2,282
24,389
339
1,955
6,814
19,849
2,242
2,273
23,744
337
-2%
9%
-3%
5%
0%
3%
1%
2,386
6,891
19,481
2,379
2,208
21,927
420
2,181
6,434
20,277
2,283
2,169
19,331
385
9%
7%
-4%
4%
2%
13%
9%
US$/oz
US$/oz
US$/oz
US$/oz
1,238
20
1,538
830
1,271
20.19
1,518
817
-3%
1%
1%
2%
1,180
19.57
1,640
865
1,259
20.23
1,618
855
-6%
-3%
1%
1%
1,444
28.54
2,246
1,117
1,313
22.71
1,889
885
10%
26%
19%
26%
US$/t
US$/t
US$/t
95
121
72
99
137
80
-4%
-11%
-10%
90
136
74
94
145
83
-4%
-6%
-10%
114
180
106
97
179
99
17%
1%
7%
US$/lb
29
39
-26%
36
46
-23%
72
73
-2%
Morgan Stanley versus consensus, 2H14e
Morgan Stanley versus consensus, 2015e
10%
10%
4%
5%
9%
4%
2%
1%
1%
1%
1%
0%
5%
5%
3%
0%
0%
1%
1%
1%
0%
0%
-2%
-5%
-3%
-2%
-5%
-4%
-3%
-3%
-4%
-6%
-10%
-10%
-10%
-6%
-9%
-11%
-15%
oa
l
G
Th
o
er
ld
m
al
C
oa
l
C
O
re
C
ok
in
g
er
Iro
n
Si
lv
N
ic
ke
l
Le
a
Al
um d
in
iu
m
Ti
n
Pl
at
in
um
Pa
lla
di
um
Al
um
in
a
Zi
nc
C
op
pe
r
C
oa
ok
l
in
g
C
oa
l
O
re
al
C
Th
er
m
ol
d
G
Iro
n
Ti
n
Al
um
in
a
Si
lv
er
Le
ad
ic
ke
l
N
C
Zi
nc
op
pe
Pa
r
lla
di
um
Pl
at
in
um
Al
um
in
iu
m
-15%
e = Morgan Stanley Research estimates and Bloomberg and Consensus Economics for market consensus estimates.
Source: Bloomberg, Consensus Economics, Morgan Stanley Research
67
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Commodity Preference
Commodity
Bearish
Neutral
Bullish
Thesis
Copper
Supply disruptions and better than expected demand are keeping the SD balance tight, consensus is far
too bearish over price if current market conditions sustain
Platinum
Despite the strike resolution, South African supply remains constrained while industrial demand remains
solid
Zinc
Expect continued outperformance as the deficit intensifies and global auto sector strength drives demand
Lead
Weaker than expected Chinese demand dulls the price recovery, but weak supply growth will remain
price supportive
Nickel
Price has run ahead of itself, but current levels are justified against next year's supply shortfall
Coking Coal
Much needed supply response is trickling in, we think spot pricing improves by year-end
Palladium
Recent price rebound has met our expectations, solid SD fundamentals will continue to support upward
trajectory
Aluminium
Strong 2Q price performance may dampen further delta, but supply cuts have improved the SD balance
Alumina
Near-term demand is challenged, but Indonesian bauxite ban will pull more material from seaborne
market
Iron Ore
We think cost support lies between US$90-100/t in 2014/15 - expect prices to average in this range
Gold
Most indicators suggest negative trajectory, but geopolitical instability and dovish Fed rhetoric poses
upside risk
Uranium
Producers are rapidly adjusting to the extreme low price environment, but a supply overhang is cutting off
price upside
Thermal Coal
Prices are not yet low enough to prompt an adequate supply response
Source: Morgan Stanley Research
68
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Commodity Price Forecasts
Base Metals
Aluminium
Copper
Nickel
Zinc
Lead
Tin
Unit
1Q 14
2Q 14
3Q 14e
4Q 14e
1Q 15e
2Q 15e
3Q 15e
4Q 15e
2014e
2015e
2016e
2017e
2018e
2019e
LT Nominal
LT Real
US$/lb
0.80
0.83
0.84
0.85
0.86
0.88
0.85
0.88
0.83
0.87
0.90
0.95
1.02
1.10
1.25
1.08
US$/t
1,754
1,838
1,852
1,874
1,896
1,940
1,874
1,940
1,830
1,913
1,984
2,094
2,249
2,425
2,748
2,386
US$/lb
3.18
3.07
3.15
3.25
3.32
3.35
3.30
3.45
3.16
3.36
3.40
3.45
3.35
3.45
3.60
3.13
US$/t
7,013
6,764
6,945
7,165
7,319
7,385
7,275
7,606
6,971
7,397
7,496
7,606
7,385
7,606
7,938
6,891
US$/lb
6.65
8.40
8.50
8.45
8.65
8.75
8.70
9.00
8.00
8.78
9.00
8.75
8.50
8.40
10.18
8.84
US$/t
14,671
18,519
18,739
18,629
19,070
19,290
19,180
19,842
17,640
19,346
19,842
19,290
18,739
18,519
22,439
19,481
US$/lb
0.92
0.94
0.99
1.00
1.02
1.05
1.07
1.12
0.96
1.07
1.10
1.12
1.17
1.20
1.24
1.08
US$/t
2,026
2,079
2,183
2,205
2,249
2,315
2,359
2,469
2,123
2,348
2,425
2,469
2,579
2,646
2,740
2,379
US$/lb
0.96
0.96
0.99
1.00
1.02
1.03
1.05
1.04
0.98
1.04
1.06
1.07
1.06
1.10
1.15
1.00
US$/t
2,127
2,121
2,183
2,205
2,249
2,271
2,315
2,293
2,159
2,282
2,326
2,359
2,337
2,425
2,543
2,208
US$/lb
10.25
10.48
10.50
10.75
10.85
11.00
11.15
11.25
10.49
11.06
10.50
10.25
10.00
10.25
11.46
9.95
US$/t
22,592
23,103
23,149
23,700
23,920
24,251
24,582
24,802
23,136
24,389
23,149
22,597
22,046
22,597
25,257
21,927
Precious Metals
1Q 14
2Q 14
3Q 14e
4Q 14e
1Q 15e
2Q 15e
3Q 15e
4Q 15e
2014e
2015e
2016e
2017e
2018e
2019e
LT Nominal
LT Real
Gold
US$/oz
1,291
1,290
1,250
1,225
1,200
1,175
1,165
1,180
1,264
1,180
1,165
1,150
1,200
1,325
1,444
1,254
Silver
US$/oz
20.44
19.66
20.49
20.15
19.80
19.45
19.35
19.67
20.18
19.57
19.91
20.54
22.22
25.48
28.54
24.78
Platinum
US$/oz
1,428
1,448
1,525
1,550
1,610
1,630
1,650
1,670
1,488
1,640
1,760
1,890
2,030
2,180
2,246
1,950
Palladium
US$/oz
745
815
820
840
850
860
870
880
805
865
951
1,050
1,068
1,118
1,117
970
1Q 14
2Q 14
3Q 14e
4Q 14e
1Q 15e
2Q 15e
3Q 15e
4Q 15e
2014e
2015e
2016e
2017e
2018e
2019e
LT Nominal
LT Real
US$/t
121
103
93
97
92
95
88
85
103
90
87
85
85
90
114
99
US$/t
121
115
117
125
130
135
140
140
119
136
160
170
180
180
180
156
US$/t
78
73
70
74
71
72
75
78
74
74
81
85
89
94
106
92
1Q 14
2Q 14
3Q 14e
4Q 14e
1Q 15e
2Q 15e
3Q 15e
4Q 15e
2014e
2015e
2016e
2017e
2018e
2019e
LT Nominal
LT Real
Bulk Commodities
Spot Iron Ore Fines 62%
Equiv, CFR N China
Spot Prem Hard Coking
Coal, Aus Export FOB
Spot Thermal Coal,
Newcastle FOB
Other Metals
Spot U3O8
US$/lb
35
30
28
30
32
35
37
40
31
36
50
55
60
65
72
62
Zircon
US$/t
1,100
1,100
1,100
1,100
1,200
1,200
1,200
1,200
1,100
1,200
1,275
1,294
1,313
1,331
1,500
1,302
Rutile
US$/t
850
850
850
850
1,000
1,000
1,000
1,000
850
1,000
1,075
1,094
1,113
1,131
1,275
1,107
e = Morgan Stanley Research estimates. Source: Morgan Stanley Research
69
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Global Economic Forecasts
Source: National Statistical Bureau, Morgan Stanley Research Estimates
70
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Global Rates Forecasts
Source: Morgan Stanley Global Rates Strategy
71
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Morgan Stanley Global FX Forecasts
Source: Morgan Stanley Global FX Strategy
72
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
August 2014 Reporting Season Calendar
73
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
August 2014 Reporting Season Calendar – Sort by date
Source: Company Data, Modelware, Morgan Stanley Research
74
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
August 2014 Reporting Season Calendar – Sort by date
Source: Company Data, Modelware, Morgan Stanley Research
75
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
August 2014 Reporting Season Calendar – Sort by date
Source: Company Data, Modelware, Morgan Stanley Research
76
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
August 2014 Reporting Season Calendar – Sort by date
Source: Company Data, Modelware, Morgan Stanley Research
77
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
August 2014 Reporting Season Calendar – Sort by date
Source: Company Data, Modelware, Morgan Stanley Research
78
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
August 2014 Reporting Season Calendar – Sort by date
Source: Company Data, Modelware, Morgan Stanley Research
79
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
August 2014 Reporting Season Calendar – Sort by date
Source: Company Data, Modelware, Morgan Stanley Research
80
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
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emphasizes the separation of operating performance of a company from its financing for a more complete view of how a company
generates earnings.
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81
MORGAN STANLEY RESEARCH
Australia Macro+ “The Monthly”
August 3, 2014
Disclosure section (cont.)
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Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions
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(as of July 31, 2014)
For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equalweight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not
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Coverage Universe
Investment Banking Clients (IBC)
Count
% of
Total
Count
% of
Total IBC
% of Rating
Category
Overweight/Buy
1082
35%
343
40%
32%
Equal-weight/Hold
1357
44%
411
48%
30%
Stock Rating Category
Not-Rated/Hold
113
4%
22
3%
19%
Underweight/Sell
558
18%
88
10%
16%
Total
3,110
864
Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in
the last 12 months.
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August 3, 2014
Disclosure section (cont.)
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Disclosure section (cont.)
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Disclosure section (cont.)
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