Although some investors may feel the Australian share market is expensive at just under 17x earnings, Crispin Murray from BT Investment Management Ltd (ASX: BTT) believes the current low interest rate environment justifies the market premium.
According to a report in the Australian Financial Review, BTIM's head of equities told shareholders at Friday's annual meeting that "history says that low interest rates mean markets trade at high multiples and that's where we are today."
I would have to agree with Mr Murray. I don't see Australian inflation being strong enough for the Reserve Bank to consider a rate rise next year. In my opinion they are more likely to go lower, than they are to go higher. This should allow Australian shares to trade at current levels for at least another 12 months.
As a result BTIM continues to remain heavily invested in Australian equities. Here are seven of its largest holdings that it expects to perform well.
Amcor Limited (ASX: AMC)
Whilst I'm a big fan of this leading packaging company, I would choose the spun-off Orora Ltd (ASX: ORA) ahead of it. I believe Orora's expansion into the point of purchase market and its strong position in the United States will allow it to outperform Amcor in 2017.
Australia and New Zealand Banking Group (ASX: ANZ)
It's nice to see a fund manager bullish on a bank. ANZ is still my pick of the banks at this time. The ongoing sale of its non-core assets appears to have simplified the business and should allow it to focus on growing its key businesses.
BHP Billiton Limited (ASX: BHP)
I'm reasonably bearish on commodities so I wouldn't buy BHP Billiton at the current price. If commodities retreat in early 2017 and BHP's share price drops, I might then be tempted to look at an investment.
Caltex Australia Limited (ASX: CTX)
At the current share price I think this leading fuel retailer is a buy. Its refiner margins have shown a big improvement in the last two months. If the company can carry this form over to 2017 then I expect a return to profit growth.
Metcash Limited (ASX: MTS)
At 11x earnings Metcash does look reasonably cheap at the moment. But due to the emergence of ALDI, a potential Amazon Fresh launch next year and continued price wars between supermarkets, I would avoid the sector.
Qantas Airways Limited (ASX: QAN)
I think Australia's flagship carrier would be a great investment if oil prices remain at current levels. But if the OPEC and non-OPEC production cut drives oil prices up beyond US$60 a barrel, Qantas could start to see its margins squeezed.
ResMed Inc. (CHESS) (ASX: RMD)
This manufacturer and developer of obstructive sleep apnoea devices is definitely a share I would want in my portfolio. The sleep apnoea market has been growing at a rapid clip for the last few years and I expect this will continue to be the case for several more years.
