THE investment company Argo says the best rise in shares may have already occurred as Australian companies will generate modest earnings growth in the next 12 months.
On Monday Argo reported a net profit of $86.28 million for the half year to December 31, up slightly from $85.76 million. Total investment returns from its portfolio of stocks were 16.3 per cent.
Argo's chief executive, Jason Beddow, said while Australian stocks were relatively good value for long-term investors, there were questions over company earnings.
"In general we do not expect strong earnings growth from companies over the coming 12 months, which is likely to lead to only modest dividend growth," Mr Beddow said.
He said company revenues were not growing, consumer spending was fairly soft, and the Australian dollar was staying high. Another couple of interest rate cuts would probably not be enough to drive the currency materially lower. With little revenue growth, companies were likely to boost earnings by cutting costs.
Investors may have probably already seen the best rise in share prices, at least until earnings growth regains some strength, which may be in the 2014 financial year.
Mr Beddow said the market rally was not based on earnings growth but more on what had not happened: a US recession, a hard (economic) landing in China or European economic disaster. "None of those happened. The market was possibly a little pessimistic and recovered from that and kept going with it."
Mr Beddow said the market was unlikely to reach any extraordinary heights in the near term.
"If the (Australian) market consolidates around this level, at around 5000 points or plus or minus a couple of per cent, that's probably a pretty good rebound for the next six to nine months."
Argo maintained its interim dividend at 13¢, fully franked.