Specific stocks to drive Australian equities

The Australian equities market will be increasingly driven by specific stocks rather than dominant industrial sectors over the coming 18 months, according to fund manager Fidelity Investments Australia.

Fidelity head of Australian equities Paul Taylor said: “We think that for the rest of the year and in 2007 the market will come back to a lot more individual stock related issues. I think you’ll see less big runs in sectors, like materials and energy, and a greater focus on stock specifics.

“As the rising cost of equities becomes an issue, there will be a focus on quality and discernment, and it’s going to be those companies that have better balance sheets that will thrive,” he explained.

While Taylor feels the returns delivered by the domestic equities market are about to normalise back toward the historical long-term mark of 12 per cent, he still thinks the asset class will represent good value for investors.

“Twelve per cent is a good return in anyone’s language. Whether that’s shares or property, 12 per cent is a good return. Maybe people might look to do better offshore, but the history has shown us Australia’s outperformed the rest of the world over the long-term,” he said.

The manager’s view on the local share market coincides with the third anniversary of its Australian Equities Fund.

During this time the product has accumulated $19.7 million in funds under management, and delivered a return of 31.3 per cent compared to the 23.9 per cent return generated by the S&P ASX200 index over the same period.

Taylor attributes much of the fund’s success to his firm’s ability to access Australian stocks from a global perspective, with four of its team of nine analysts based in Hong Kong for this purpose.

“For sectors such as mining the key things are what’s happening in China. For companies such as BHP Billiton that’s the crucial factor. It’s important to be meeting with them here in Australia, but to understand the key drivers coming out of China you need to have that global presence. We think that’s one of our key competitive advantages,” he said.