Australian equities facing 'price adjustment'

Australian equities facing 'price adjustment'

Valuations for Australian equities may be out of line with their moderate outlook as growth forecasts are “heavily distorted” by expected rebounds in resource sector profits, according to Morningstar.


In a note to investors, the research house cautioned that recent earnings per share growth estimates, such as Credit Suisse’s expected 15 per cent growth forecast, are driven heavily by growth in mining and energy profits, expected to be 59 per cent and 42 per cent respectively.

“Ex the resource sectors, the outlook for everything else - 80 per cent of the index - is for distinctly less impressive 4.8 per cent profit growth, yet investors are paying a price to earnings ratio of 18.4 times current earnings, which is an expensive price by historical standards,” Morningstar said.

The research house said a “clear acceleration” in business cycle pace has the potential to change this, but at present Australian equities may face a period of ongoing readjustment “to more realistic valuations”.

Additionally, while Australian equities don’t appear to be breaking away from slower-than-usual growth, Morningstar said a case was building for “a gradual turn for the better” off the back of an improving mining sector, where “the wind-down of investment spending has been a major drag on overall economic performance”.

Read more:

Good year for emerging markets: VanEck

AZ NGA firm acquires CBA-aligned practice

Forget the 'new normal', says Montgomery

Carbon not priced into equities, warns AXA IM

Eaton Vance to acquire responsible investment firm

 

 

 

Australian equities facing 'price adjustment'
ID logo
promoted stories

Appointments

investordaily image

AMP names incoming chief risk officer

Jessica Yun

investordaily image

Antares Equities hires new director

Staff Reporter

Brad Fox

Former AFA CEO appointed to boutique board

Staff Reporter

Analysis

ST Wong

Busting common passive investing myths

ST Wong

investordaily image

The long-term case for real estate

Chris Bedingfield

investordaily image

Shining a light on investment options

Stuart Hoy