The asset manager said the renewed confidence that came into the market during 2013 has seen risk appetite improve, but cautioned investors that the current premium price on PE ratios currently seen in the equities market may not continue.
“The long-term outlook for credit growth is subdued, and with regulatory requirements for higher capital levels, earnings per share growth from the big banks is unlikely to move above the mid-single digit level for the next five years,” Hyperion chief investment officer Mark Arnold said.
“Price to earnings ratios are an important metric, but they are not the best predictor of future value.”
“Long-term stock prices should, on average, grow in line with earnings and dividends per share growth, so these are the factors that investors should focus on.”
Mr Arnold said investors should take a longer term view and look at earnings and dividend per share growth as indicators of performance.
Specifically, Hyperion said it rated online and health care stocks higher for 2014, but viewed resources and mining stocks with caution since they will have low predictability.
“It’s great to see renewed confidence flowing into the market,” Mr Arnold said. “But for investors looking for long-term performance, a focus on strong, predictable earnings growth is still the best guarantee of success.”
