Foreign investor support for Australian equities is on the rise, with the asset class producing relatively high yields compared to other equity markets, says Morningstar.
A Morningstar update on the Australian equity market found overseas investors are now overweight Australian equities, their enthusiasm buoyed by the comparably high yields delivered by the asset class.
According to Morningstar, at the Credit Suisse annual Asian Investment Conference, held in early April, it was found that in 2015, conference attendees were underweight Australian equities – but this stance has now shifted to overweight.
“Overseas investors were wary of two of the bigger sectors on the ASX (financials and resources), but were nevertheless prepared to invest because the currency is expected to appreciate further and the dividend yield is the highest in the region,” Morningstar said.
The research house did note, however, that Australian shares are currently on the expensive side. This is due to the “reasonable, but not outright strong, outlook”.
“Valuations may be expensive, but they could be maintained by ongoing dividend-oriented foreign buying in the current low yield world,” Morningstar stated.
The research house expects the Australian economy to grow at a “subpar two-point-something pace", not at the “three-point-something pace” that was achievable before the mining boom started to dissipate.
The latest Reuters poll of economists indicated that the economy will grow by 2.6 per cent this year and 2.9 per cent in 2017, Morningstar said.
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