Equity markets delivered ahead of expected returns across most global equity bourses in 2012. The volatile returns from one quarter to the next were not a pleasant investor experience, but the approximate 16% total accumulation return for the ASX200 year-to-date will be a positive driver for superannuation wealth effects. Given most mandates remain overweight their cash benchmark, there is the prospect of a switch from cash to equities if a more stable performance compared with the past few years develops. Given the extreme event and tail risks priced in earlier this year (and in previous years) the current landscape appears to be more of tactical money waiting on the sidelines to redeploy on any market correction (circa 10%).
Chart 5: Australian equity valuations. Recent multiple expansion is anticipated to continue in 2013.