Financial services firm UBS has boosted its year-end target for the S&P/ASX 200 index from 5300 to 5450 points as Australia's economic and profit recovery continues to unfold.
"Equities are close to fair value, though earnings risks appear skewed to the upside," UBS strategists David Cassidy and Dean Dusanic said in a report.
"While we had been anticipating upward revisions to consensus estimates, the strength of recent upgrade momentum across a number of sectors suggests upside risk to our previous 5300 year-end target."
UBS's upgraded target for the S&P/ASX 200 implies a 15.54 per cent gain from Monday's close of 4717.
From a domestic earnings perspective, UBS expects around 3 per cent earnings growth in fiscal 2010 and 22 per cent in fiscal 2011.
Commonwealth Bank of Australia (CBA) on 15 January said it expects to report an unaudited cash net profit after tax of $2.9 billion for the half year ended December 2009.
The bank said the forecast was significantly higher than its profit for the prior comparative period and exceeded analysts' forecasts of around $2.7 billion.
"We continue with our overweight in banks. We stay overweight mining while we retain an underweight in energy where valuations still look stretched," UBS said.
"Among non-financial industrials, earnings momentum favours cyclicals though valuations for defensives continue to look appealing. Media is our key overweight within this space."
However, while the local market's internal fundamentals look promising and global conditions are improving, significant uncertainties shroud the medium-term backdrop, UBS said.
"The burgeoning developed world government debt would appear to be the most potentially damaging, with higher bond yields the most obvious catalyst for a weaker equity market," it said.
