Cautious market expected to bounce after federal election

Analysts are tipping Australian shares to enjoy a fillip after the federal election and a better than expected reporting season.

A clear result after Saturday's poll is expected to bolster confidence and earnings growth, which has been gradually gathering momentum in past months.

Although company earnings were flat on average in the second half of 2012-13, Deutsche Bank equity strategist Tim Baker said that was an improvement from the previous 18 months of decline.

"I'm still inclined to think the market has some better times ahead, certainly on the earnings front," said Mr Baker, adding he expected 2013-14 earnings growth to be in the high single digits.

The optimism comes after a tough year for many companies, which battled a high Australian dollar, global growth uncertainty (particularly in China) and cautious consumer behaviour.

Nevertheless, analysis from CommSec shows Australia's top companies are still making money.

Excluding index leaders Commonwealth Bank and BHP Billiton, aggregate profits of ASX 200 companies rose 4.8 per cent in 2012-13 compared with the previous year. More companies cut dividends than in 2011-12, but even more lifted dividends, according to the CommSec report, as cash holdings grew 35 per cent to about $105 billion.

CommSec chief economist Craig James attributed the increase to companies implementing a range of cost-cutting programs as well as boosting productivity.

Mr James is predicting better times ahead with the ASX lifting from about 5174 points (where it was trading at noon on Monday) to 5300 points by the end of the year.

"The federal election has proved to be a major influence on the Australian economy," Mr James said. "Consumers and businesses alike have been reluctant to spend, invest and employ.

"As a result, the economy has been starved of momentum. But once the election is out of the road, we expect the economy to rebound."

Veteran stock tipper Charlie Aitken, from Bell Potter, was particularly bullish, saying in a client note on Monday morning he expected the ASX 200 to rise to 6000 points in coming years.

He based his forecast on an asset shift back to equities from term deposits, with interest rates at their lowest since 1959 fuelling the change.

"There is a record $620 billion sitting in bank term deposits earning close to 0 per cent real after tax," Mr Aitken said. "I believe a large proportion of that can be coaxed back to buy/hold/collect fully franked dividends [in] Australian equity investing.

"But companies are going to have to give these investors what they want: sustainable tax effective income."

And companies have been rewarding shareholders this reporting season. ASX 200 companies delivered about $55 billion in dividends in 2012-13, close to 30-year highs, with a dividend payout ratio of 70 per cent.

Special dividends returned, with Suncorp rewarding long-suffering investors with 20¢ a share after selling a bunch of soured commercial property loans, while coal-to-supermarket conglomerate Wesfarmers thrust almost $600 million, or 50¢ a share, into investors' pockets to thank them for enduring its high-stakes decision to bet the company on Coles. Other companies, like Coca-Cola Amatil, paid a 2.5¢ special dividend despite its half-year net profit tumbling 8.5 per cent.

Mr Aitken said the investment payments made sense, and rejected comments that companies were rewarding investors at the expense of capital expenditure.

"Australian boards are recognising that their increasingly mum and dad/self-managed super fund-dominated registers reward consistently receiving a high proportion of annual profits as fully franked dividend income.

"It's a positive development for the asset class.

"It does not restrict the ability to grow by acquisition as loyal shareholders of consistent dividend payers will support growth initiatives via rights issues and placements if a sensible growth proposition is put in front of them."