Australia is now among the preferred equity markets, equities-purchase-which-markets-are-currently-preferred

Australia Is Now One of The Preferred Equity Markets

Which equities are worth purchasing now and which ones are not? While some markets currently have little potential for rising share prices, good entry opportunities for the near future can be found in Australia, for instance.

The equity markets that are well suited for purchases right now and the ones where caution is advised can be assessed based on current prices. Although many markets have little potential for profit, good entry opportunities may be seen in Australia.

On the whole, equity markets were up slightly last month* since low volatility and upward earnings revisions continued to offset the high valuations and slowing economy. Global equities can be regarded as neutral based on the uncertainty regarding monetary policy, the threat of geopolitical risks, and a potentially tough reporting season in the second quarter.

Japan and the emerging markets performed the best during this period in the equities asset class. It is likely that the emerging markets will not continue to outperform share prices, however. Out of all the major regions, they had the worst movement in earnings revisions as compared to global equities.

Should You Purchase Equities in the US and the Euro Zone Now or Not?

A more restrictive Fed paired with slower growth could be an obstacle for US equities, so these should be regarded with caution. However, equities in the euro zone are still benefiting from the strong economic environment that has resulted in solid earnings revisions for the second month in a row.

Although the region is no longer priced low, it may continue to outperform, particularly if the euro weakens as is projected. Since oil prices are still likely to recover, Canada and the energy equities sector as a whole can still be viewed positively.

MSCI Australia Relative Valuation Index

MSCI Australia Relative Valuation Index 

Australian equities appear more affordable than global equities. Last data point: June 7, 2017. Historical performance figures and financial market scenarios are not reliable indicators of current or future performance. Source: Datastream, Credit Suisse / IDC 

The Recent Decline in Share Prices Creates Opportunities in Australia

The Australian market performed the worst within our universe last month, and valuations fell within a more attractive range than for global equities. The trigger for this weak performance was a new 6 bp tax for major banks that was announced by the Australian government during its budget presentation.

The negative impacts of this tax on financial institutions – which make up more than 40% of Australia's equity market – caused the country's equity prices to drop. Despite the fact that this was bad news, the market probably overreacted by doing this. After all, the tax will only have a limited impact on profits, and banks may even pass the additional costs on to clients, although the government is attempting to prevent this as much as possible. As such, Australian equities present a tactical opportunity. This preference also provides hedging in the event that the Chinese economy performs better than projected.

*Data from June 2017