Colonial First State Global Asset Management (CFSGAM) has warned investors that risks still remained in the market as the effects of governments unwinding stimulus packages are unpredictable.
"We are now going through the greatest financial experiment that the world has ever seen," CFSGAM head of core Australian equities Martin Littler told financial advisers at a van Eyk conference yesterday.
"Nobody really understands what the effect is when these stimuluses start to be removed. Getting the stimulus back is a very difficult situation and it is going to be very interesting to watch what happens in the coming years.
"All I can assure you is that just as you relax, there is going to be something that comes out of left field and kicks you up the bum."
The United States, China, Japan and eurozone countries pumped trillions of dollars into their own economies throughout 2008 and 2009 to stave off a deep recession.
Littler added that when analysing companies, investors should think about regulatory risk, protectionism risk, industrial relations risk and sovereign risk.
"What protectionism generally does is increases inflation. It cuts down on world flows of trade and generally it leads to unexpected consequences that are generally bad," he said.
CFSGAM currently favoured quality franchises with good management and balance sheets, Littler said.
"We have overweight positions in BHP Billiton and Rio Tinto because of ... coal and iron ore. We do not like the one product mining companies," he said.
"We are underweight retail [stocks] because, from our common sense point of view, if you look at what happened in retail when the government stimulated our economy retailers did okay.
"As soon as those stimuluses came off people stopped spending the money, and also interest rates are going up."
