The global asset manager viewed Australian hedging costs as “high” and the Australian dollar “overpriced” in its 2014 Annual Global Outlook.
“Australia looks expensive in a global context, with its valuation unjustified either by its sector composition or its economic prospects,” the report said.
“Overall, the Australian market is trading at a price/earnings premium around five per cent, but its dominant sectors - finance and resources - would ordinarily be considered low-multiple sectors.”
However the report noted a dividend yield close to five per cent could attract fund flows from domestic cash and bond funds.
Australia’s fixed income market offers significantly better value than other Asia Pacific nations such as Japan, where 10-year government bonds are trading at 0.7 per cent, the report stated.
“We believe better value can be found in Australia, where 10-year government bonds are trading at 4.4 per cent as of December 6, 2013, and where growth rates are beginning to lag northern hemisphere counterparts for the first time in a decade.
“Weaker economic growth would be a positive for Australian bonds.
“On the other hand, foreign holdings of Australian debt rose to record highs through the years of global crisis.”
