Australian Stocks Overvalued, Say Us Funds
Sun Herald
Sunday March 23, 2003
THE world's biggest investors, US mutual funds, don't seem to think Australian shares are great value, despite the claims of stockbrokers.
``Australia is overvalued compared with the US and Europe today," said Paul Warren, managing director of Boston-based Putnam Investments, the fifth-largest US mutual fund.
Putnam manages BT's overseas funds.
``Australia outperformed them for three years and by definition is more expensive," Warren said, citing comparable prices for Australian and leading US bank shares. ``The US banks are 10 to 20 per cent cheaper on a price-earnings ratio and discounted cash-flow basis," headded.
Warren predicted the Iraq war would have little impact on sharemarkets.
``In two years, it will be seen as a lot of noise about nothing. We'll find it's a bit of a storm in a teacup," he said.
Putnam is investing in financial, basic materials and health-care shares, and downgrading capital goods and utilities.
He said that Wall Street appeared undervalued by 20 to 25 per cent because bond yields were so low, which was an anomaly. If these rates rose to a more normal 4.5 per cent, then Wall Street appeared to be 5 to 10 per cent undervalued.
So shares are ``slightly undervalued, but not dramatically," he said.
``I expect a 7 to 8.5 per cent annual return over the next fewyears."
But the US economic recovery ``will be very mild, very slow".
He predicted real US GDP would grow 1.3 per cent this year and 1.4 per cent next year.
``Normally you would have expected a dramatic upturn after several years of low growth," he said.
© 2003 Sun Herald
