Australian equities key for a double-digit market

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An Australian equities expert is cautiously optimistic that more investors will come back to equities, adding further hope that the Australian market will stay in double digits for the second year running – something that hasn’t happened since 2006-2007.

Expectations are low, says ST Wong, Portfolio Manager at Australian equities manager Prime Value Asset Management. “We are in a slower resources economy, consumers are still reluctant spenders and more likely to be paying down debt.

The manager is cautiously optimistic that more investors will come back to equities. “Investors remain cautious but there may be a lift in sentiment on the back of the strong equity market return in 2012.

“With a flat property market and a low cash rate, Australian equities become more attractive, particularly to self-directed investors such as self-managed superannuation funds.”

Wong said the market will be weighing up evidence that interest rate cuts are having a stimulatory effect and that companies’ operating conditions are improving. “The response to interest rate cuts has been slow and will need to be more emphatic.

“It’s hard to see decent gains without a pick-up in companies’ operating conditions, in fact they will have to start justifying recent stock market gains.”

Wong said that 2013 would be more of a stockpicker’s year after 2012 was dominated by income-plays. “Income was the stand-out thematic in 2012 but if the market is to pick up again in 2013 we may see more of a shift to cyclical stocks, which puts the stockpickers back in their element.”

However, the Chinese economy reaching a trough will help bring some optimism to the local market. “China finished 2012 strongly and there are signs of a pick-up and the market will be looking for confirmation of this throughout the year.”