Sentiment Poor but Valuations Compelling
The Australian equity market finished the quarter in the black with the S&P ASX 200 Accumulation Index finishing up 2.1%. This was well behind many of the major international bourses which bounced from oversold levels at the end of the September quarter despite a continuing challenging macro backdrop.
In our view, the equity market is pricing in a material chance of a major sovereign default in the coming months. Should such a scenario be avoided (and we believe that it will be avoided) then we ought to see a strong relief rally in equity markets.
