Corporate Australia remains in good shape and in a strong position to withstand an economic downturn, according to Perennial. John Murray, managing director of Perennial Value Management, estimates the financial market slump is “70 per cent over”, and that “the worst is behind us”. “If the economy turns down significantly, corporate Australia is in very good shape, better shape than in the early 90s,” he says. “Big, strong companies will pick up market share in the long term.”
Perennial expects 21 per cent earnings per share (EPS) growth for the market in the 2008/09 financial year, compared to just 3 per cent in 2007/08. The forecast for industrials is 8 per cent in 2008/09, versus minus 3 per cent last financial year, and 50 per cent for resources, versus 18 per cent. Murray says he is not concerned about the lack of guidance in outlook statements during reporting season, adding that “as an industry, we have become far too reliant” on these. Murray says inflation concerns are not as big as they were six months ago, predominantly as a result of the tempered oil price. Dr Philippa Malmgren, adviser to Deutsche Bank and president of London-based Canonbury Group, is less optimistic about the global outlook for inflation.
“For the next decade, [investors] have to think much harder about how to manage money in an inflationary environment,” she says. “We are in a period of differentiation. The rising cost of capital compels you to differentiate between companies that can retain their purchasing power and contain their costs. Those [companies] that can manage margins, maintain cash flow and retain purchasing power are the winners.” Bill Barbour, director and investment specialist at Deutsche Asset Management, agrees inflation isn’t over – “not by a long stretch”.
