The next 12 months will see a returned focus to high quality businesses with strong cash flows and decent earnings.
That’s the belief of Fidelity’s country head for equity investments, Paul Taylor, who said that despite dire predictions, 2019 will be a stronger year for the Australian equity market. Mr Taylor was confident that much of the uncertainty experienced in 2018 will have played out.
“Interest rates remain low, balance sheets are strong, earnings growth is still mid-single digits, valuations have improved and dividend yields are attractive,” he said.
“I would expect to see earnings growth combined with valuation expansion in 2019 driving solid investment returns for the calendar year.”
The ASX 200 delivered a negative 2.5 per cent return for 2018 following strong returns in both 2016 and 2017. Market concerns around higher interest rates, a US/China trade war and declines in the residential property market consumed positive returns from the first half of 2018.
Fidelity’s Mr Taylor noted that over the last few years, low quality businesses have been pushed up by the stock market on higher inflation and growth expectations.
“I think this is unlikely to continue in 2019 as fundamentals re-exert their dominance,” he said.
“Personally, I always love these periods in investments markets as it gives me the opportunity to buy the businesses I’ve always wanted to own at much more attractive valuations. Warren Buffet once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. It certainly feels like a lot of people are fearful right now. Is it time to get greedy?”
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