“Domestic banks – the mortgage market is their bread and butter, and they’re a huge part of the market. Domestic-facing industrials and consumer-facing stocks would all find it tough going and indeed we’re starting to see discretionary retailers warn about the consumer starting to turn cautious,” he says.

Minack, who worked at Morgan Stanley before starting Minack Advisers, has a mix of institutional investor clients, many of them based overseas.

While at Morgan Stanley, which he left in 2013, Minack developed a reputation for being bearish, after warning about the build-up of risky debt before the global financial crisis of 2008. He says that while he may have had a reputation for pessimism, on the issues that made him bearish – such as credit bubbles and the like – he was ultimately right.

Besides, he is notably more upbeat about parts of the market over a longer timeframe of two to three years.

Over the longer term, Minack believes the financial world is on the cusp of a “massive change” – a turning point in the era of “secular stagnation” over the last 20 to 30 years, during which interest rates generally fell.

Coal companies, in particular, I reckon are going to be the Camel Unfiltered of the next cycle.

Gerard Minack

The investment implications of such a turning point are widespread, but he says that on a three-year view, he likes sectors and markets dominated by companies that make things, such as industrials, mining stocks, and energy companies. Over a three-year horizon, his favourite market is Japan, which he says is the most cyclical major market in the world.

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Looking beyond the short-term ups and downs in the domestic economy, he also believes Australia’s sharemarket is fairly well-placed over the longer term, pointing to the big role of miners and carbon-based energy companies on the ASX.

While some view fossil fuel producers as risky investments, Minack argues these companies will benefit as governments limit their competitors by preventing new fossil fuel developments. He draws a parallel with tobacco stocks, which he says have been a highly lucrative investment because governments outlawed their biggest expense: marketing and advertising. Carbon-heavy energy businesses are likely to prove to be “the tobacco stocks of the next 20 years,” he says.

“Coal companies, in particular, I reckon are going to be the Camel Unfiltered of the next cycle. They’ll do very well.”

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