The economy is showing encouraging signs that earnings growth is starting to return to the market, but consistent rate cuts aren't having a stimulatory effect because Australians are so invested in cash.
Those are the thoughts of lead portfolio manager and principal of Alphinity Johan Carlberg, who told InvestorDaily the economy has not been significantly impacted nearly 16 months into the rate cutting cycle.
"The reason is that Australians in general still carry fairly high debt levels - house prices haven't really reacted to the lower rate cuts so therefore it hasn't quite had the stimulatory effect that you would expect at that point in time," Mr Carlberg said.
In addition, rate cuts have been pushing down the term deposit rates which made them less attractive for investors, he said.
Mr Carlberg added that between 2005 and 2008, analysts had increased their earnings forecast, but the trend had reversed in the past three years.
"That is not unusual," he said. "It's quite typical if you looked at it over a longer time period - say the last 15 to 20 years. Analysts started off being a bit too optimistic and then they had to pare the numbers down a bit."
There needed to be room for earnings growth at the end of each period but the fact that revisions were slowing down was an initial encouraging sign that it was occurring, Mr Carlberg said.
The shift from investment in term deposits to equities and higher risk assets shows there is support from those who were waiting for a setback to occur, he added.
