Investors in Australian shares could see a 30 to 50 per cent rally this year, Platypus Asset Management chief investment officer Donald Williams predicts.
However, in a bittersweet move, the rally will be unsustainable.
“It is going to be a long time before we reach a new high in the Australian stock market,” Williams said.
“If we take a 10-year view, Australian equities look good, but the shocks of last year have left the market in a weakened position.”
He said the forthcoming reporting season would be the first indication of how companies have performed in last year’s difficult second half.
“We think the market has priced in a 35 per cent decline in prices based on some bad news during the reporting season,” Williams said.
“Lend Lease has been an example of how bad news has been priced in.”
Platypus will be looking at consumer sentiment on how that will affect company bottom lines and the impact it will have on trading results.
Globally, central bank intervention is having some impact on economies, although falling house prices are still the problem in the US.
“A lot of the fixes being introduced in the US are by trial and error,” he said.
“As a result of a global downturn, we think Australia has a zero per cent chance of avoiding a recession.”
Wingate Asset Management chief investment officer Chad Padowitz said in a liquidity crisis, which is what the world is experiencing at present, everything falls relative to cash.
“It is one of the greatest investment environments,” he said.
“As long as you can find the companies that are not impaired by the crisis and are just cyclically weak.
“This means analysts have their work cut out.”
Padowitz said the biggest danger facing global economies is government intervention lasting too long.
“There has been an unnatural drop in demand, which has resulted in growing unemployment,” he said.
“So governments have stepped in to bridge the gap and create demand.
“When demand comes back, governments need to step back. The danger will be if they stay in there too long.”
Padowitz said if governments get the timing right, it will deliver considerable upside for investors.
