With Telstra (TLS) shares crashing to $2.78 and Ramsay Healthcare (RHC) under $58.00 and down 25% since August 2017, it does remind you that not all “defensive” stocks prove defensive in share price terms.
I am particularly bearish on Australian listed ‘defensive’ stocks in general. I think REITs and hospital stocks, in particular, look overvalued, and I also continue to believe pure infrastructure stocks are potentially wildly overvalued, especially as interest rates rise.
My views on interest rates, bond yields and inflation are well known. I think they will rise faster than expected in the second half of 2018, as full employment drives wage rises. If that proves right, it will pull the rug from beneath overvalued “defensive” stocks and also bring an end to the so-called “yield trade”. The yield trade basically means buying any equity with a decent short-term dividend yield due to the alternative in cash and fixed interest being so low.