Don Williams, CIO of Platypus, says there are two data points leading them to believe Australian equities present good value for investors
Don Williams, CIO of Platypus, says there are two data points leading them to believe Australian equities present good value for investors. The first is the market yield compared to the cash rate. Yield stocks have done very well in 2013, but indiscriminately owning the market as a whole still gives investors a better yield than cash. From a long term perspective, an investor is being paid to hold equities at these levels. We believe the yield trade still has some time to run, particularly thanks to the additional benefit of franking imputation credits. In addition, Williams believes company earnings are steadily improving without large valuation expansion. The average forward price to earnings ratio (P/E) of the market since the early 1990s is 14.4 times, and at 28 February 2014 the market was trading on 14.5 times. This is not expensive, especially in context of the current expected earnings environment.