New cash flowing into shares
The Australian sharemarket has had a stellar in run in 2013 to be sitting at a near five-year high.
The good run is not limited to Australia, with Wall Street and European markets picking up off the lows of the global financial crisis and jumping to record highs.
Central banks worldwide are pumping new money into the financial system through quantitative easing, and the cash has to go somewhere. With record low interest rates, locally and internationally, equity yields have looked attractive.
In fact, the rush into shares has been so drastic that US Federal Reserve chairman Ben Bernanke has taken notice. "In light of the current low interest-rate environment, we are watching closely for instances of 'reaching for yield' and other forms of excessive risk-taking, which may affect asset prices and their relationships with fundamentals," he said.
Locally, the search for yield has led to a 12 per cent rise on the benchmark S&P/ASX 200 this year. High-yield bank stocks have been the main driver behind the gains, which began in 2012. In 2013, the financial sector has surged 21.1 per cent.
This year, Commonwealth Bank and Westpac joined BHP Billiton as the only companies on the ASX with market caps above $100 billion.
However, chief investment officer at Platypus Asset Management Donald Williams said that while yield was still important, the outperformance of the financial sector had likely run its course and the market would start to focus on companies that had earnings growth.
He said he expected the ASX 200 to rise a couple of hundred more points this year, and the retail sector showed signs of improvement.
"It's a long way from boom times, but a lot of retailers are reporting same-store sales growth. That had been absent for more than a year."
Mr Williams shied away from the mining sector, which is down 8 per cent this year, despite share price improvements in recent weeks.
"The reduction in commodity prices is a bigger negative than volume growth is a positive," he said.