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Morningstar runs the numbers

Lex Hall  |  12 Apr 2021Text size  Decrease  Increase  |  
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We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended 9 April.

4 per cent

At current prices, the yield that residential property is not attractive for listed vehicles. At the moment, the ASX 200 A-REIT index offers an average yield of 4 per cent, writes Hugh Dive, chief investment officer at Atlas Funds Management. “This compares favourably with the yields from investing in residential property. SQM Research reported that the implied gross rental yield for a 3-bedroom house in Sydney is only 2.7 per cent, with a 2-bedroom apartment yielding slightly higher at 3.4 per cent in April 2021. After borrowing costs, council rates, insurance, and maintenance capex, the net yield is estimated to average around 1 per cent. This low yield on residential real estate contrasts sharply with the average yield after costs on commercial real estate currently above 4.5 per cent.”

2023

Hotels have been busy behind the scenes in 2020, repositioning themselves for the return of travellers and strengthening their brands and business models. The winners will emerge with economic moats, or a strong competitive advantage. “Our long-term outlook assumes a full recovery in hotel revenue per available room, by 2023,” says Morningstar sector strategist Dan Wasiolek. “We don’t see the pandemic posing a long-term threat to the hotel industry. We’ve already seen evidence that the pandemic did not damage the appetite for hotel visits, and we think this stands to persist.”

12 per cent

Technology stocks fell sharply during the first quarter of 2021 as the gathering economic recovery caused a jump in long-term bond yields and a reassessment of growth stock valuations, writes Morningstar’s Gareth James. This caused a 12 per cent fall in the S&P/ASX 200 Information Technology Index, which significantly underperformed the 2 per cent rise in the S&P/ASX 200 index. “However, several relatively new software stocks, such as Wisetech Global (WTC) and Xero (XRO), still look expensive and we see more opportunities in IT Services names, like Computershare and Link Administration, and more established software providers, like IRESS,” James says.

0.10 per cent

The official interest rate and yield on the Australian Government 3-year bond. It was left unchanged when the RBA met on 6 April. “While corporate Australia struggles to provide guidance for the next six months, the RBA is not so timid,” writes Morningstar’s Peter Warnes. “The foot remains firmly on the throttle, which controls the monetary policy to power the economy, and will stay there until ‘at least 2024’. The determination to stick with guidance to ‘at least 2024’ reflects a lack of transparency and heightened uncertainty, not of confidence.”

1.1

The Australian stock market is nearing all-time highs as investors chase growth and interest rates are kept at record lows, but Morningstar analysts warn that many sectors are overvalued. In their first-ever Australia and New Zealand quarterly equity market outlook, analysts Adam Fleck and Gareth James say the average price/fair value across their coverage remained around 1.1 through the first quarter of 2021. "We recommend investors approach the market with caution," they say.

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is senior editor for Morningstar Australia

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