It is simply too hard to predict where the Australian economy is headed, he said. “There is no clear line of sight for the next six to twelve months.”
But even if there is an economic downturn and the jobless rate starts rising, the big four banks are in good shape, will not have to go to the market to raise capital, and are likely to still pay out solid dividends.
“Their balance sheets are excellent. I’m pretty confident they’ll be able to maintain their dividends under most scenarios,” he said. But share price gains among the banks over the next few months are unlikely.
Argo in the past six months has added to its holdings in Santos, Macquarie Group, coal producer Stanmore, IDP Education and Superloop. Mr Beddow said the tough intervention measures put in place by the Federal government, and by governments in other countries mean that new projects will be difficult to progress and new supply won’t come on. “We think there’s going to be under-investment,” he said.
“We’re still relatively bullish on gas demand for the next ten to twenty years,” he said.
The transition to a cleaner energy economy will likely take longer than policymakers expect, and companies with existing gas assets which are well-managed should be able to deliver strong returns.
Argo believes that both BHP and Rio Tinto should be strong performers over the next few years, but it is equally hard to see their respective share prices rise far from current levels. The investment company stands ready to top up its holdings in both miners should there be a short-term slide in the share prices.
Argo trimmed back its holding in liquor store retailer Endeavour Group, the owner of Dan Murphy’s and BWS, during the half and exited completely from its stake in packaging company Pact Group.
“Pact was disappointing. It was too small and had no pricing power”. Argo also fully sold out of lightweight wheelmaker Carbon Revolution and Tabcorp.