Expectations for a global growth recovery and high company earnings are too optimistic and premature, a number of Australian equity managers have said.
“One of the biggest issues facing the market is that earnings expectations are very high,” Investors Mutual senior portfolio manager and head of research Hugh Giddy said.
Historically, Giddy said there are very few years where analysts and stockbrokers who have a very bullish bias ever get earnings right and are seldom too low in their expectations.
“The reason why there are some headwinds for some company earnings is there are a number of factors up there,” he said.
“The global financial crisis is over, in many ways, but the causes of it in terms of too much debt and too much leverage are still there for the world economy.”
Giddy said the best opportunities lie with those companies that produce recurring earnings and have good management.
Celeste Funds Management chief investment officer Frank Villante said global recovery expectations are too optimistic.
“Expectations for a global growth recovery are too optimistic and the believers that emerging market demand will forever underpin the Australian economy have the air of ‘pangloss’ about them,” Villante said.
“As expectations are adjusted in the short to medium term, this will inevitably create some headwinds for the Australian equity market.”
He said in terms of opportunities, the company focus is very much on specific stocks as distinct from sectors or thematic areas of the market.
AR Capital Management portfolio manager Craig Connelly said for markets to move higher, there needs to be clear evidence of improvement in underlying activity.
“We need to see clear evidence of a sustained improvement in underlying activity that translates into earnings growth, sustains current valuations and facilitates price-to-earnings ratio expansion. It’s all about earnings, earnings, earnings,” Connelly said.
