Morningstar said the Australian share market “struggled to make ground” in 2016, with rallies experienced in April, May and June all fading off and leaving equity market capital gains “effectively all square” for 2016.
Looking forward, Morningstar said the was “still no clear evidence” of a pick-up in business activity pace in Australia, and that “the run of data continues a pattern of two steps forward, one step back”.
“The three sectoral performance indices compiled by the Australian Industry Group are a good example. On the latest – October – readings, manufacturing and services both returned to growth, but construction slipped back into contraction: two lights turned green, but one turned red,” the company said.
Morningstar also cited data from the NAB monthly business survey from October, which indicated an “unsettling” trend of economic slowdown – a “downbeat picture” also evidenced in official data.
“Wages growth in September was very modest, growing at a 1.9 per cent year-on-year rate, while the latest jobs numbers, for October, showed fewer new jobs (9,800) than forecasters had expected (15,000),” Morningstar said.
Consumer confidence has not been badly affected by this however, Morningstar said, and still sits above its long-run average according to the ANZ-Roy Morgan consumer confidence index.
Morningstar said the economy was growing at a “slightly slower” than usual pace, but that “some acceleration [in equity market growth] is likely over the next six to twelve months”.
“If it materialises – and it has been ‘over the horizon’ for some time now without ever actually coming into view – then the faster pace of the business cycle would support the current, modestly expensive valuation of Australian equities,” Morningstar said.
“If not, or if bond yields continue to rise and put increased pressure on the relative valuation of Australian shares, equities could well extend their recent run of underperformance.”
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