Alphinity says equity growth likely to soften


By Julie May

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Earnings growth in equities in the 2014 financial year was the best the Australian share market had witnessed for some time, but Alphinity Investment Management has warned growth in 2014/15 is likely to be subdued.

Alphinity principal and lead portfolio manager Johan Carlberg said in an interview with financialobserver  that amid a low-growth environment, Australian retail investors needed to be mindful that yields and dividends were not the only consideration for equity investments.

“Share prices can move up and down, and in that respect equities can be more risky than cash holdings,” Carlberg said.

“If you look at this reporting season, earnings growth is the best we’ve seen in the last three years - it’s been around the 10 per cent range.

“After really no earnings growth in the 2012 and 2013 financial years, we’ve had about 10 per cent growth in aggregates in 2014.”

He said the outlook for earnings growth in the 2015 financial year was more subdued.

“At the moment the consensus estimate is for about 5 or 6 per cent earnings growth, and that lower growth is due to little to no growth in resources earnings, and lower bank and general market earnings growth,” he said.

“One factor that helped earnings growth in 2014 was that we had a weaker Australian dollar, but forecast of the exchange rate is difficult.

“You won’t get that tailwind in 2015 that you got in 2014.”

In terms of the domestic economy, the fairly low-growth environment was a contributor to lower interest rates, he said.

“Equity markets will be held back a little over the next 12 months because after some pretty good returns over the last year the market is looking closer to full value,” he said.

He said although local interest rates were low, they were still high relative to the rest of the world, so fixed income instruments were still attractive, which had helped Australia.

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