Speaking in Sydney yesterday, Tyndall AM portfolio manager and senior analyst Jason Kim said the Australian share market in the past two years has produced returns of 32 per cent on an accumulative basis and 44.5 per cent allowing for dividends.
Mr Kim said it should be noted, however, that the market increased during this period with an absence of any earnings growth.
“What we have seen is the share market ... re-rated quite significantly,” he said.
According to Mr Kim, the price earnings multiple for the Australian share market is above average, which suggests it is already “quite fully valued”.
“For the market to move on from here we need to see some meaningful earnings growth and sustained earnings growth as well,” he said, adding that market expectations for earnings growth are around eight per cent.
“At Tyndall, we believe this could be a tad optimistic,” he said. “We think that earnings recovery is more likely to be a 2015 story rather than a 2014 story.”
According to Mr Kim, there has already been a peak in the capex cycle for resources, with the mining capex peaking at the beginning of last year, and he believes this will represent a significant headwind for the economy.
Lower interest rates have also taken longer to flow through than in past recoveries due to a lack of household confidence, he said, noting that households have chosen to reduce their mortgages rather than spend money on purchases.
“We have started to see very early signs of the retail sector seeing improvement but again we need to see more traction,” he said.
