MARKETS SPECTATOR: Brakes on a bull run?

The Australian stock market is trading at a substantial premium in a global context and relative to earnings, but the bull run may be about to end.

Few paid to opine about stocks seem to think the market can make further substantial gains.

Yesterday, UBS strategist David Cassidy told reporters the Australian stock market was a “decent premium” versus the MSCI World Index on a one-year forward IBIS consensus earnings forecast.

Cassidy said this is in a contrast to the 1990s when Australia traded at a “deep discount” to world stocks.

Chris Caton, chief economist for BT Financial Group, agrees.

He believes the market’s price earnings ratio is now 14 times forecast 2013 earnings compared with a long-term average of 14.4. At the beginning of the latest rally in June last year, the market’s PE was 10.5, he says.

Caton sees Australia as expensive compared to the rest of the world.

Moreover, Robert Penaloza, head of Australian equities at Aberdeen Asset Management, believes Australian company earnings growth will be “modest” for the financial year ending June 30, 2013.

Still, UBS’ Cassidy new December 31 S&P/ASX 200 Index forecast is 5250, up from 5000.

But with many downright skeptical about miners and the absence of enthusiastic championing for other sectors of the market, Cassidy’s target may be optimistic. Many in his trade are paid for that. 

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