AFIC warns on market downturn

The risk of a sharemarket downturn is growing amid rising political unrest around the world and possible interest rate hikes, according to Australia's largest listed investment fund.

The Australian Foundation Investment Company (AFIC), has made the warning as it fears several years of market gains and dividend growth have made investors complacent.

AFIC's net profit in the year to June 30 rose by 5% to $243 million, due mainly to rising dividends from its investment portfolio, which includes many of Australia's largest companies.

AFIC anticipates good investment opportunities in the year ahead as more companies join the sharemarket, and the prospect of more government privatisation.

But it also believes interest rate rises and political uncertainty could have an impact on investment markets.

"We believe risks are elevated," the company said.

"There is the ongoing reliance on low interest rates to support sentiment and growth and the potential for subdued earnings outcomes."

At some point interest rates will rise, although the timing and impact still remains uncertain.

"There are also the risks of unanticipated geopolitical events," AFIC said.

The market has made slight gains since the the shooting down of Malaysia Airlines flight MH17 last Thursday, but trade has been light as investors practice caution due to the resulting political tension.