Morningstar senior analyst Julian Robertson said from mid-2011 the forward price-to-earnings ratio on the Australian share market “jumped about 50 per cent” to 15 times from approximately 10 times.
“While this is a significant rise, the market doesn’t appear to be significantly overvalued but at the same time doesn’t offer compelling value,” Mr Robertson said.
“Morningstar’s Australian equity analysis would concur with the findings that the market has crept into mildly overvalued territory,” he said.
“The long-term average for the MSCI Australia forward [price/earnings ratio] is about 14. Incidentally, the same could be said of international equities where the long-term average is slightly higher at about 16 times,” Mr Robertson said.
Mr Robertson also said the Australian share market has had a “solid” performance rising 6.39 per cent for the 12 months ending 31 October 2014.
“Over the past year, all sectors posted positive returns but to varying degrees, with healthcare, telecoms, A-REITs and financials among the standouts, reflecting the more positive market backdrop in general and the ongoing hunt for yield,” Mr Robertson said.
“Notable laggards included materials [and] resources [sector], which were held back by falling commodity prices, among other things, and consumer staples on muted consumer demand and poor earnings growth,” he said.
“The general picture, however, was very positive which has prompted a number of commentators to raise red flags about valuations,” Mr Robertson said.
