A leading Australian equities-focused fund manager says the local market is becoming more positive and expects to see improved earnings for local companies in the first half of 2014/15.
But Platypus Asset Management chief investment officer Donald Williams says the market still has to get through a difficult earnings season first.
Falls on US markets on Monday and Australian markets on Tuesday have not changed Mr Williams' view that Australian equities are recovering and will start to show earnings growth in the first half of next financial year.
Australian shares suffered their biggest one-day loss since August on Tuesday after weak US manufacturing data spooked investors, with the benchmark S&P/ASX200 index dropping 90.8 points, or 1.75 per cent, to 5,097.1.
"The fundamentals haven't changed - the global economic recovery is gaining momentum," Mr Williams told journalists at a briefing on Tuesday.
"We think the risk to growth is at least evenly balanced and I would argue more to the upside for this calendar year."
Mr Williams said the Australian economy is flat, but low interest rates are yet to have a real impact on stimulating business activity, as is the lower Australian dollar, which has dropped about nine US cents since October 2013 to around 88 US cents on Tuesday.
"As a generalisation we believe that the lower currency will make Australia more competitive and is good for earnings as well," Mr Williams said.
Property has recently picked up, with Mr Williams commenting that the market in beach houses had picked up for the first time since the GFC, and recent industry figures showing a 14 per cent rise in new home sales during 2013.
Mr Williams also reads the rebound in the IPO market as a sign of recovery, despite a rush of lower-quality offerings in December.
Retail sales figures due out on Thursday would also be a useful indicator after an uptick in spending for November.
"If we get another good reading in December I think you can start to make the case that things have already started to improve," he said.
At the end of 2013, analysts were classing Australian shares as fully priced after the broader market rose 15 per cent for the year despite poor earnings results.
Mr Williams said Australian shares are no longer cheap but said he did not consider them expensive either, if earnings growth followed through in the first half of 2014/15.
In the current half year season, he expects quality companies to meet their forecast numbers, while the good fortune may be more widely spread within six months.
"Potentially, fiscal 2015 may be a year where the vast majority of sectors are participating in the earnings growth in the market and there's a reasonable chance of getting a double-digit EPS number for the market that's not reliant on resources for driving it," he said.