GMO Australian Outlook

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The market appears cheap, trading on a forward multiple of 10.5x. This has come down recently at the same time as earnings have been downgraded. The two are probably linked. The results season that has just passed was not as bad as some had feared, however it did result in further downgrades to forecast earnings. Sentiment around global growth has also caused downgrades for commodity exposed stocks. Published expectations are still for strong growth (>10% for each of the next two years), and the risk is that this expectation is pushed out further. Despite this risk, there is a good chance of a rebound in sentiment once earnings seem to have established a base and if the current macro concerns can be satisfactorily resolved.