MARKETS SPECTATOR: Outlook for stocks may be bright

Australian stocks may be battered in coming days but the outlook for shares over the coming months may be bright, says UBS Australian equity strategist David Cassidy.

The S&P/ASX200 Index’s 6.9 per cent retreat to 4861.381 yesterday from its 52-week high of 5220.987 on May 14 now gives the index a more realistic valuation, says Cassidy. The index is now trading at about 12 times 2013 forecast earnings compared with more than 14 times in May, according to analysts.

“I’m not bearish over the next six to 12 months,” says Cassidy.

Cassidy points to a recovering global economy, led by the US – which is good for stocks – in light of Federal Reserve Chairman Ben Bernanke's comments. The Fed may ease back its monthly $US85 billion bond-buying program because US economic data is improving. The Australian dollar’s 12 per cent fall against the US currency since January 10 will help company profits, says Cassidy.

“In the near term I expect the market to churn, go nowhere,” he says. "While Bernanke’s comments on quantitative easing were a touch more hawkish than perhaps some expected. But the message from Bernanke is that the ending of quantitative easing is data dependent.”