Bright outlook for Aussie stocks
Australian shares have outperformed their global counterparts over the past year, and AMP Capital believes this trend will continue.
To get a handle on the future, it’s useful to understand the past, and the big question is whether the structural underperformance of Aussie equities is over, says chief economist Shane Oliver.
He says the underperformance of Australian shares since 2009 reflects a mix of payback for its huge outperformance in the 2000s, worries about the deteriorating relationship with China and low exposure to pandemic winners.
“An often-expressed view is that Australian companies are not investing because shareholders want high dividends, and this could be causing poor profit growth and share returns ... This is unlikely.
“The dividend payout ratio [dividends relative to earnings] is not out of line with its historic norm.”
Australia’s high dividend payouts are healthy from a long-term perspective.
Oliver says that while Australia’s performance last year could just be noise, several fundamental considerations suggest that the structural relative underperformance since 2009 is likely to be over.
“After 12 years of underperformance and the reversal of the 2000s outperformance, Australian shares are due for a lengthy period of outperformance.”
Consistent with this, Australian shares are trading on a lower forward price-to-earnings multiple of 14.5 times compared with global shares on 15.3 times and US shares on 17.1 times.
On monetary tightening, Oliver says the Reserve Bank policy is no longer relatively tight compared with other major central banks, including the Federal Reserve. “It has been taking a more balanced approach to returning inflation to target.”
While Australian property prices likely have more downside, Oliver believes there is no sign of a property crash dragging down banks and pushing the economy into recession.
There will be bumps along the way, but we can expect five to 10 years of outperformance from here, he says.