Some of the country's most well-known fund managers are predicting downgrades in corporate earnings in 2015 and for the broader Australian share market to weaken as the domestic economy struggles to grow.
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David Paradice, founder of Paradice Investment Management which manages $8 billion in assets, expects earnings to be downgraded in the year ahead as businesses feel the pinch of lower commodity prices and underwhelming industrial earnings.
"The Australian growth outlook remains modest. So far, very low interest rates have mainly resulted in higher property prices rather than the desired broader improvement in economic activity," he said in a client note.
"Consumer sentiment generally remains soft. Despite the lower Australian dollar, there is little optimism that the non-resource economy is going to materially accelerate any time soon, post the peak of the commodity boom."
Specific stocks that Paradice thinks will perform well despite the underlying economy include Caltex, Cochlear and Tabcorp.
Geoff Wilson, founder of Wilson Asset Management, which has $851 million in funds under management, believes economic growth will be soft at best in 2015 and the local equity market will be lower at the end of next year than at the start.
"My outlook for slow economic growth and the removal of excess liquidity globally lies at the core of this prediction," he said in a note to investors.
The stocks Mr Wilson likes given the current environment include Slate & Gordon, Infomedia and Aristocrat Lesiure - all of which should benefit from a weaker Australian dollar.
Over the past few years, corporate Australia has significantly reduced costs in an effort to boost profitability. This has been done against a backdrop of record low interest rates, increased global stimulus and a two-and-a-half year rally in equities.
Australian shares are 25 per cent higher since May 2012 and this has flowed through to the returns of investors particularly through super funds.
The Australian sharemarket traded on a price-to-earnings ratio (P/E) of 14.4 times at the end of the quarter to 30 September 2014, with consensus expecting around 4 per cent earnings growth next financial year. In the context of a low bond yield environment, the market's valuation looks reasonable, according to Mr Paradice.
But he added that "we feel already modest earnings growth is set to be downgraded, as lower commodity prices and underwhelming industrial earnings flow through".
Lower interest rates, with the Reserve Bank of Australia's official cash rate currently at 2.5 per cent, have not yet led to a pick-up in broad economic activity.
Indeed Credit Suisse strategist Damien Boey believes there will be another rate cut in light of slowing global growth, falling commodity prices and a local economy that is struggling to adjust.
Earlier this month, Morgan Stanley also gave a bleak assessment of the Australian economy which raised fears that the country could face recession unless it can achieve more balanced economic growth.
Mr Wilson said that when the broader economy eventually exhibits strong growth, the impact on corporate profitability will likely be significant. For instance revenue growth of 5 per cent could lead to a 25 per cent increase in profitability for any company that can maintain costs with a 20 per cent profit margin. But the key challenge is when economic conditions are likely to improve.