Greater confidence in Aust equities returns

28-Feb-2014

By Krystine Lumanta

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The positive growth trajectory and balanced outlook for the Australian share market this year warrants a return of confidence in local stocks, according to a portfolio manager.

Alphinity Investment Management lead portfolio manager Johan Carlberg said at an aggregated level, Australian company earnings had held up, with the biggest earnings upgrades skewed to several large-cap companies.

“In terms of the recent earnings, and therefore the market, and given the strong returns we’ve had over the last 18 months or so, I’d say so far, so good,” Carlberg told financialobserver.

“I think the earnings trajectory for this year does look a bit better.

“The sector outlook is more balanced this year than it was last year where you had an extreme divergence between banks and resources, in particular, as resources struggled with the falling commodity prices and the banks with the yields.”

Despite the outlook for banks remaining benign, the earnings base for the market was widening, he said.

“This means what planners should think through in a portfolio is to have more diverse exposure rather than just relying on the banks,” he said.

“That includes resources but also other stocks that are reacting now to the FX [foreign exchange] benefits and the interest rate cuts.”

Commenting on the gradual flow of cash into riskier assets, including equities, he said there was reason to be optimistic that stocks were on a growth trajectory again.

“Whether we will see it or whether we should see it, it’s difficult to know, but with the rally that we saw in equities in the last 18 months there was rationale behind it, which was that the market was too cheap and now that earnings growth is coming through,” he said.

“Therefore, I think even if we don’t get the returns we had last year, we should get close to double-digit returns in equities so it’s warranted to have more growth assets in your portfolio, though my understanding is that there is still quite a lot of interest in fixed interest-type products out there from financial planners.

“We should have confidence in equities return.”

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