The continuing decline of cash rates and term deposits will make the dividend yield of the Australian equity market increasingly attractive to investors seeking income returns in 2013.
Attractive market valuations from a medium- to long-term perspective are anticipated, giving some backing to this position.
Paul Taylor, Fidelity Worldwide Investment's country head and Australian equities fund portfolio manager, said buying bank shares with very appealing dividend yields and franking credits is still a superior risk return investment.
But he urged that while the market is looking positive for 2013, individual stock selection remains critical.
"Those companies that can deliver growth or a high and sustainable dividend yield, or both, will continue to be bid up by the market in this environment," Mr Taylor said.
"I would expect to see earnings upgrades for the Australian market as we start to see the benefits of lower interest rates working their way through the economy."
The Australian equity market delivered close to a 20 per cent total return in 2012 and Mr Taylor said he expects a similar, positive outlook in 2013.
"The US and China are looking much more encouraging at the start of this year than they were at the start of 2012," he said.
"Europe remains in a difficult spot and will likely take a long time to work its way out of the sovereign debt crisis, but the central authorities have done their best to try and take the worst case scenarios off the table.
"We are likely to see flare-ups continue to come out of Europe in 2013, but these will probably be great long-term investment opportunities."
Fidelity believes sectors such as industrials, diversified financials, insurance, telecommunication, property and healthcare will enjoy strong and growing cash flows in 2013.
