Articles

9th Mar, 2009

Australian Equities 2009 Outlook
by Charles Thomasson, Investment Advisor, Wilson HTM Investment Group

After such a shocking year in 2008, the one consolation is that an extremely weak outlook for corporate earnings is now priced into equity markets globally. The Australian market has priced in similarly bleak corporate earnings decline as in the US and other markets, but arguably our earnings should deteriorate less. Clearly the correction in commodity prices will bring resource sector earnings down dramatically, but a potentially more moderate downturn in the domestic economy, because of the strength of our banking system, government stimulus packages and RBA interest rate cuts, should see our industrial company earnings fair better than abroad. This could mean outperformance in Australia when equity markets turn up globally.

We have now also seen our reporting season move past the half way point, and the results, while generally weak, are perhaps a little less grim than feared. Stand out results have been reported by Woolworths, Commonwealth Bank and Woodside Petroleum.

One important point to note is that investors, and in particular superannuation funds, have high cash holdings on the sidelines. ABS statistics on the flow of funds into the market are only available up to the September quarter last year, but they still provide an important picture, and we can make some inferences about more recent flows. Cash holdings in super funds appear to remain at record levels, a result of the large contributions to super the household sector made ahead of 1 July 2007. With fixed income investment returns at record lows, some select blue-chip stocks are offering fully franked dividend yields in excess of 6%.

In summary, much uncertainty in global markets still exists. However, lower oil prices, lower interest rates, government stimulus, planned tax cuts and the various global rescue packages are all positives for the Australian economy. The share market is a 12 month lead indicator of the economy, so with a number of positives now in place, by the end of 2009 we should see some kind of recovery.

Charles Thommason can be contacted on 07 5509 5502.