ARTICLE · 09 JULY 2014

Australian equities: forecast for the next 12 months

Moore Australia

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We would advocate a move from an overweight allocation back to a slightly underweight allocation to Australian equities.

AustraliaStrategy

Haris Argeetes

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Overview

Over the year ending 30 June 2014 the ASX 200 Accumulation index rose by 17.43%.

S& P ASX200 Accumulation

Valuations

Despite its numerous shortcomings, the Price/Earnings (P/E) ratio is one of the more common valuation metrics. As at 30 June 2014, the P/E for the Australian sharemarket (ASX 200) is around 15.6 times earnings (i.e. the weighted average earnings by market capitalisation of the market as a whole), while the long term average is around 15 times earnings. This infers that the sharemarket is modestly overvalued at the current time but when taking into forecast 2015FY earnings, we would expect fair value to be around 5600 for 30 June 2015, implying potential upside of 3.8% over the next 12 months.

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