Overview
The ASX 200 Accumulation Index returned 2.50% over the six months ending 31 December 2014
Outlook
The outlook for the Australian sharemarket is subdued. From a valuation perspective, the ASX 200 is currently trading close to the long term average (as a multiple of earnings). With the market trading around fair value, an improvement in earnings is required to lift the market higher. Given the current economic conditions, any improvement is likely to be modest and uneven.
Although commodity prices have fallen sharply, we expect the downturn in China to continue, forcing many analysts to further revise profit expectations for the resources sector. Although share prices have already fallen sharply, further falls are likely.
Interest rates and oil prices however are likely to stay lower for longer. This should benefit the sharemarket in a number of ways:
- Borrowing costs should stay low, reducing costs for business.
- Costs of transportation should fall.
- Household incomes may improve, which could support retail sales.
- Defer the looming risks in the banking sector that are rising from the sharp increase in new loans to residential property investors.
- Force many income dependent investors to seek riskier assets in an attempt to generate more income, including higher yielding shares.
Conclusion
Although valuations are not compelling, we expect demand for equities to remain supported by the low interest rate environment. We recommend investors marginally increase exposure from slight underweight to neutral.
This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2014 Moore Stephens Australia Pty Limited. All rights reserved.
