Australian stocks were oversold and their biggest boost would come from self-managed superannuation funds (SMSF) and other retail investors, UBS strategist David Cassidy said.
Cassidy said institutional investors remained on the sidelines.
"I think they've been pretty passive," he said.
"I think the really big licks of cash are going to come from retail or from overseas. Obviously, it's all linked. And it tends to move together, but I think the big shift in flows will be more global or retail investors engaging in the market again.
"Retail is where the cash is. If you look at cash levels in self-managed super funds, they're massive: about 30 per cent."
In the meantime, he expected dividends to hold up in the upcoming earnings season, underpinning investor sentiment and share prices.
"Yields are attractive," Cassidy said.
Companies were not under pressure to cut their payouts for the second half of financial 2011, he said.
"I'd tend to see dividends as a source of support for the stockmarket in that I expect them to be maintained. Even with the banks giving out some slightly cautious commentary, you're still looking at a prospective dividend yield of close to 7 per cent. That's pretty attractive."
