UBS is modestly bullish on the Australian stockmarket for the next two years, saying relatively low interest rates will spur consumer spending and, eventually, restore investor confidence.
"UBS has been modestly starting to position the portfolio by adding a few more cyclical stocks into that portfolio," economist Scott Haslem told reporters.
The investment bank has flagged better momentum in retail, housing and credit following the Reserve Bank of Australia's (RBA) interest rate cuts at its past two monthly meetings, bringing the official cash rate down a total of 50 basis points to 4.25 per cent.
UBS' view stands out from others in the market who agree that Australia's economy will post solid, if not robust growth in 2012 but believe the economic cheer will not spread to stocks.
"We're tactically neutral at the global level but we're strategically positive on equity markets so, from an allocation globally, we are looking for the appropriate point to become more optimistic on equity markets - and our price targets are all punchy by the end of 2012," Haslem said.
He said consumers had taken a 'rabbit in the headlights' approach to the RBA's two years of monetary policy tightening.
In late 2009, the central bank began raising rates from a 49-year low of 3 per cent after taking the view the historically low rate, implemented to help households through the worst of the global financial crisis, was past its use-by date.
Haslem said the RBA's recent rate cuts could help dilute the fear factor which has dominated Australian households, giving way to a greater willingness to spend.
He added that Europe's debt woes could subside - or at least not worsen - over the year, which could help reinvigorate investors' appetite for risk.
"The US looks okay, corporate debt is low, Japan has a reconstruction underway, Asia's got good balance sheets," he said.
"There should be enough final demand in the world, absent Europe, to deliver below-trend growth, but markets aren't priced for below-trend growth. They're priced for something materially worse than that and, in that environment, we're constructive on equity markets."
