Australia's economy is likely to experience optimistic periods in the coming years, with the country's equity, fixed interest and micro-cap markets showing signs of improvement, albeit patchy.
Platypus Asset Management chief investment officer Donald Williams said in the past 12 to 18 months, "just about everything" that had occurred in the Australian macro sector had resulted in poor sentiment.
"As a result, the vast majority of companies have really struggled to grow profit. It's probably been the most persistent negative earning environment that I can recall and I started off in this business in the early 1990s when things were pretty grim back then," Williams told a briefing yesterday.
"I think it would be fair to say the breadth of the pain and duration of the pain has been at a much higher level this time around."
However, despite the past doom and gloom, forecasts placed the Australian economy in a better earnings environment in fiscal 2014, he said.
"The good news for the Australian equity market is we think the prospects are improving, but we think progress will be gradual," he said.
"In terms of looking at fiscal [2013], we're not overly excited about fiscal '13. We're coming into the new financial year with a very poor run rate for earnings. The outlook for the major sectors is quite poor, however, one thing that has changed, which is a significant change, is that the rating environment has changed."
While in most environments it would be expected lower interest rates would work their way back into the economy and help businesses, Australia was still waiting for confidence to return, he said.
"It hasn't really flowed into confidence yet, but we think that's just a matter of time. We do think that is coming," he said.
"Everyone has to remember that it takes a good 12 months for a rate cut to really filter though the economy. So our expectations are that by the second half of 2013 you will start to see some of that impact, you'll start to see more optimistic comment from individual companies and some better numbers from a lot of the domestically exposed companies in Australia."
In terms of more immediate forecasts, he said he would be unsurprised to see another "flat six to 12 months".
"But we would be surprised if we weren't sitting here in a year's time and the outlook for the Australian equity market looking a lot more positive than it is today," he added.
In terms of the fixed interest sector, Altius Asset Management senior portfolio manager Chris Dickman said the market was going to be "confronted" with an ongoing patchy and regionalised economic growth backdrop.
Dickman said there was going to be a continued "rolling maul" of political risk as a result of the United States elections and European reform.
"The Australian economy is indeed restructuring, with mining as a share of GDP has grown twofold, coming in around 5 per cent as recently as 2003 and 2007 and now climbing towards 10 per cent," he said.
He said while manufacturing was considered the big negative item, in the main other sectors were reasonably stable, with "fantastic opportunities" existing in the Australian corporate environment.
Meanwhile, on the micro-cap front, Acorn Capital chief operating offer and head of Asia Douglas Loh said the sector provided opportunities for research-driven managers.
Loh said in terms of near-term outlook, the sector was likely to experience significant macro headwinds, with balance sheets more conservative since the global financial crisis.
There is also a risk of margin squeeze and continued uncertainty has emerged, resulting in price-per-earnings compression.
While Loh said it was difficult to predict which industry sectors would outperform, pockets of opportunity existed in the engineering and mining production sector.
