Over the quarter ending 31 March 2012 the ASX 200 Accumulation
index rose by 8.40%.
The March quarter was dominated by a relatively lacklustre
reporting season. Many companies had announced downgrades in the
preceding six month period so while earnings were generally in line
with expectations, expectations had already been lowered. Lower
commodity prices resulted in a 7% fall in profits for the resources
sector. Despite benign credit growth banks still managed to lift
earnings by around 7%, mainly due to lower bad debts. Outlook
statements remained cautious prompting a reduction in FY12 earnings
estimates. Despite this, analyst earnings growth estimates for the
ASX 200 in FY13 remain high at around 14% (versus FY12 estimates of
around 1-2%), of which growth in industrials is expected to be
around 10% (versus about 5% for FY12).
The Australian sharemarket has drifted upwards in recent months,
mainly in the slipstream of global markets that have been buoyed by
US growth and an easing (albeit short term) in EZ risks. Yet the
recovery very much remains in its formative stages. The sharemarket
continues to trade on depressed multiples that are well below long
term averages. To put this into perspective, the market is
currently trading on a multiple of around 12 times FY12 earnings
and around 10.5 times FY13 earnings. If the long term average is
closer to 14 times earnings, then (assuming mean reversion) fair
value for the ASX 200 as at 30 June 2012 would be around 5,000
points and fair value for 30 June 2013 would be around 5,700
Although the performance of the Australian economy remains
sub-par, it is impossible to ignore the valuation disconnect that
has emerged on equity markets. Given the easing of risks (albeit
temporary) in the EZ, we expect the rally to gain strength in
coming quarters. For these reasons we recommend building from a
mild to moderate overweight exposure to Australian equities.
An actuarial review of the Invensys Australia Superannuation Fund showed it to be in surplus to the tune of $189.2 million. In mid 2003, the Invensys Group proposed to the trustee that the surplus be repatriated to the principal employer in the group.
CIVs will have flow-through status for tax purposes and similar criteria as the MITs, to encourage foreign investment.
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