The outlook for the Australian equities market is much harder to predict today than it was four years ago, according to Platypus Asset Management chief investment officer Donald Williams.
"Because we had such a strong run, [the equity market] was earnings driven and that underpinning has been pulled from under the market at least for the next 12 months," Williams said.
"Any forecast for the Australian equity market, you've got to put a large potential error around that forecast."
If you exclude resources, profit levels have dissipated to pretty low levels, Williams said.
"Debt is more expensive and in terms of growing your business, you have to use equity more than debt," he said.
In this current environment, there is no chance of valuation expansion, Williams said.
"The bottom line is that the market is in a trading range," he said, adding that the range has been identified as anywhere between 1000 to around 5000 on the index.
Despite a slowdown in the US and despite a current slowdown in Australia, Platypus Asset Management believes that the longer term concerns haven't really dissipated.
"Inflation, we would argue, is as big a problem, if not a bigger problem, today as it was a couple of years ago," Williams said.
"Inflational expectations just haven't adjusted."
The pain for equity investors in terms of further price to earnings ratio contraction may not be that great, he said.
