Record corporate returns, high merger and acquisition (M&A) activity and large retail investment inflows have precipitated a re-rating driven Australian equities market, according to BT Head of Australian Equities, Crispin Murray.
“The market is fully valued, yet there are significant differences across sectors,” Murray told a group of financial planners last week. “Australian stocks are at a 20-30 per cent premium,” Speaking at the Securitor convention in Port Douglas, Murray presented figures showing that revisions of P:Es of stocks in the ASX 200 had risen 99.4 per cent, and by 225.9 per cent in the ASX 200 Resources index, since 2003. M&A activity, substantially driven by private equity deals, comprised 15 per cent of the market in calendar 2006 and the record spate of margin lending transactions accounted for 2.7 per cent of GDP at September 2006, up from 2 per cent the previous year. Murray said the combination of low real interest rates and economic growth had predominantly precipitated this surge in value. He deemed the M&A boom as the “most important factor driving the market at this time”. Advising the attendant financial planners against “cashing in” as “there are still good ideas out there”, he said large resource companies remained attractive over the long-term. Murray pointed to Rio Tinto, whose operations cover a wide array of minerals, and whose P:E ratio of 9.8 is significantly lower than its 14.5 average, as the best stock pick among Australian resources companies for investors.
As super fund CIOs return to work for 2025, all eyes are on two things: Donald Trump’s presidency, and inflation. But they’re not the only issues that will drive investment decisions and returns, and some of them may present an unfamiliar set of challenges for a cohort of investment professionals that has grown up experiencing a particular set of market and economic conditions.
Simon HoyleJanuary 7, 2025
