Investor confidence returns but value becoming scarce

Morningstar Special Report: "Australia and New Zealand Share Market and Credit Outlook."
Investor confidence returns but value becoming scarce

• The market is fairly valued, in our view.
• Fair value should lead to a fair return over a multi-year period: High-single-digit annualised total returns roughly split between capital appreciation and dividend yield.
• The easy money has been harvested, and we now have slightly more negative recommendations than positive. Having said that, a diversified portfolio of our buy, accumulate, and hold stocks should generate total returns greater than interest on cash. Stock selection is more important than ever.
• Energy and materials offer the best value, but investors will require patience while commodity prices slide toward historical average levels.
• We prefer companies with economic moats, as always. Banks have provided strong investor returns in the last year and we see further upside, but this sector is now closer to fair value.
• Health care has been a sought-after area for investors for its prized defensive earnings growth streams, and is now one of the most expensive sectors. Share prices for retailers and media companies, which are facing structural and cyclical headwinds, have also risen beyond levels justified by fundamentals.
• New Zealand’s share market is also fairly valued, but we do see investment opportunities in telecommunications, while health care and building materials are the least preferred areas on valuation grounds.
• Australian listed credit securities have rallied due to declining interest rates and the search for high yield. We still see value in some bank-issued securities issued prior to recent regulatory changes as these are trading in line with the newer securities, which have longer terms to maturity and less favourable structural characteristics.

Full Report (PDF File) http://img.scoop.co.nz/media/pdfs/1304/20130402_Quarterly_Outlook.pdf

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