Fidelity positive on Aussie equities

Now could be a good time to buy Australian equities due to a relatively low price-to-earnings ratio (PE) and attractive dividend yields, according to Fidelity Investment Management.

The historically low 12 times PE and dividend yields of 4-5 per cent combined with strong balance sheets and large cash reserves mean some companies are trading cheaply and present an exciting opportunity, according to Fidelity head of Australian equities Paul Taylor.

There remained some concerns over European sovereign debt but Australia would likely a continuing two-speed economy with a strong resources sector, negative impacts of the strong Australian dollar and higher interest rates, Taylor said.

Key sectors to overweight would be industrials, healthcare, materials and energy, he said. Overall market valuations had decreased based on macro fears, which created stock-picking opportunities to access high-quality, high-growth companies at cheap valuations, he said.

Taylor preferred large-cap mining stocks to small-cap miners, and he said Australian banks were a good investment due to dividend yields.

Key risks in the next 12 months for the Australian market include rising interest rates, which could pressure the consumer discretionary sector; and slowing Chinese growth, which could impact commodities. A destabilising macro environment due to issues in Portugal and Spain could hang over the market for the rest of 2011, he added.