Investors can still find returns in the equity market with long-term growth in the economy predicted forward to 2014, UBS Wealth Management has stated.
UBS said that while it has lowered its growth forecast for 2013 to 2.8 per cent, it has projected next year's growth to reach 3.8 per cent from a previous estimate of 3.3 per cent.
"That is above long-term trend growth," UBS head of investments Benjamin Pedley said.
"If I'm an equity investor . we're always looking forward, and I think that's a very healthy backdrop to the Australian equity market into next year."
UBS said that the Australian dollar has been a major headwind for domestic equity markets and while it won't decline dramatically, it is likely to reach close to parity with the US dollar over the next year.
"I think the one major headwind for equity markets in Australia has been strength in the Australian dollar," Mr Pedley said.
"It gives the Australian equity market a better chance, if we're correct [with dollar predictions], to perform better verses their regional peers and their global peers."
Mr Pedley also said that domestic price pressure remained fairly contained, with interest rates in Australia at the bottom of the cycle and unlikely to be eased further.
Given this backdrop, he said it is likely that cyclical industrial stocks will outperform over the year, while banks will remain expensive for longer as a result of strong appetite for tax free dividends.
