Leading equity manager says the market is leaving tail risk behind

The Australian equities market was in a “sweet spot for risk assets” in 2013 as tail risk receded and monetary policy provided a “positive backdrop,” according to a leading fund manager from Tyndall Investment Management.

Tyndall’s head of Australian equities, Bob Van Munster, addressed a media lunch last week and said that the fund manager – now 12 months into ownership by Japan’s Nikko Asset Management – was on the positive side of market sentiment for 2013.

“The bears see the ASX coming back to 4200, the bulls see it pushing beyond 5000 points,” said Munster.

“We are not that bullish, but we are optimistic.”

Van Munster said that while Australian consumers were still paying down debt and while he was wary of the prospects for businesses exposed to consumer sentiment, corporate Australia had deleveraged and “corporate balance sheets are in good shape.”

“There’s also the issue of the continued high Australian dollar environment,” he said. “In 2011, the Australian dollar increased 13 per cent in value but it was essentially flat last year.

“It’s taken a while for corporates to realise that the currency is not going to revert, so what we see now is companies recasting their cost bases around current levels.”

This process, said Van Munster, would help “deliver productivity gains” which would flow through to improved earnings.

Another factor driving the sharemarket, he said, was the movement of money out of term deposits and credit and into equities.

“The chase for yield will still be there in 2013,” he said.

“And when that happens, and with interest rates low, there is naturally a growth in equities.”