Deutsche chops ASX forecast

From the SMH blog:

Analysts at Deutsche Bank have chopped 5 per cent off their end-of-year forecast for the ASX 200 and become more cautious on mining stocks amid fears that a strong local dollar and weakening commodity prices will hurt corporate earnings in the coming months.

In a note to clients this morning, the broker said it was “taking some risk off the table” in response to what they see as a “mid-year swoon”, although they are quick to add they “are not moving outright defensive” as they “continue to expect a stronger earnings environment to emerge later in the year”.

The catalyst for this more defensive stance is a softening in the broker’s “profit pulse” (see chart below), a “timely” measure of earnings. And the next few months could stay soft due as:

1. Chinese momentum remains muted;
2. Europe has disappointed; and
3. Sentiment in Australia (both consumer and business) has weakened, partly due to the Federal Budget.

That has resulted in their year-end target for the benchmark index dropping to 5700, from 6000, and to 5900 for mid next year, from 6200.

These targets are possible provided we get the next rate cut. DB is underweight mining, banks and overweight energy, utilities, real estate and healthcare.

Replace realty-exposed stocks with dollar-exposed industrials and that looks pretty good.