Equity Trustees is confident the ASX200 will reach a target of 5,950 by the 2014 year end, despite a seven per cent correction in early December from recent highs, according to Equity Trustees Limited chief investment officer George Boubouras.
Speaking to InvestorDaily, Mr Boubouras said the 5,950 ASX target is based on a long-run earnings momentum cycle with a long-run multiple.
“If we get a consistently low Aussie dollar throughout the course of 2014, and if we get cash rates lower or staying low throughout next year and not expected to rise, then the global momentum would be enough to grow the earnings outlook in Australia more than consensus,” he said, adding that if equities traded expensively, the target is too low.
“Our equity markets underperform, so we are lagging the rest of the world in recovery, which is the point to highlight.”
Credit Suisse recently targeted 5,800 by the 2014 year end. The ASX200 closed at 5,098 yesterday.
Mr Boubouras’s comments relate to the Equity Trustees Limited 2014 economic outlook, which warns investors to anticipate lower returns.
Authored by Boubouras, the report states that though the lower Australian dollar adds value to US equities, the best of the high returns are behind us.
“US economic conditions are expanding, which is why the taper will begin soon,” he said.
“But to expect a 20 to 40 per cent return is a very unrealistic expectation.
“Expected returns on equities over the long run are 10 per cent.
“We’ve got more than that this year and last year from global equities. So therefore before the Aussie dollar adds more value, what we try and say is that we anticipate around 10 per cent,” he continued.
“The lower Aussie dollar adds additional value, but the best of those returns are behind us. It will be a much lower return compared to 2013. That’s the premise.
“The reason the taper is starting to begin early is because markets have started to recover and become broader based, therefore they can sustain less stimulation compared to previous years. And remember markets are always forward looking. So they are pricing today for 2015 earnings,” he said.
