Australian equities are still worth buying on a one-to-two year view as corporate profits are set to rebound and then expand strongly, according to UBS Australia chief strategist David Cassidy.
"I still think there's a little bit of value in the market in terms of where we're sitting versus our fair value estimates," Cassidy said in Sydney yesterday.
"We have obviously somewhat closed the gap in terms of the value that we saw in the market around about 12 months ago or even seven months ago.
"But we've got fair value roughly for the S&P/ASX 200 somewhere around the 4900 level to possibly 5000 by year end."
Australia is the only advanced economy to have avoided technical recession amid the worldwide financial crisis and the first G-20 nation to have raised interest rates as the global economic recovery gained momentum.
UBS expects Australian gross domestic product to expand 0.8 per cent in 2009 before jumping 3.3 per cent in 2010.
The structural and medium to longer-term prospects for Australian companies and the economy looks very good due to China's strong commodities demand, Cassidy said.
"So I think that medium-term earnings growth prospects are very, very, very robust. So from that perspective I think that equities still look to be quite a sound investment on a 12-month period," he said.
The benchmark S&P/ASX 200 Index has risen over 55 per cent in the past eight months, propelling one-year forward price-earnings (PE) multiples to just over 16 from around nine in March, according to UBS calculations.
"The key to why I'm still reasonably relaxed [about PEs of 16] is that one-year forward earnings are I think depressed and going to recover and going to be upgraded over the course of the next six to 12 months," Cassidy said.
