Here is an update on the comparison of Australia's equity strategy Vs the world from Australian market analyst UBS.

Equity Strategy – Australia vs The World

Today we have seen the market rally strongly, while the other markets in the region are all posting negative performances. Since October 2007, the Aussie market has gone from being 10% overvalued compared to other markets around the world to underperforming compared to the MSCI World index by 5%. In today’s note, Macquarie Research Equities (MRE) reviews the Australian market and answers the question, “Is the Australian market undervalued?”

Prior to the market pull back late last year, the Australian market was trading on a 1 year forward PER of 16 times, this has now been pulled back to 13 times using earnings consensus numbers. By comparison, the US market is now trading on 14 times. When the market is broken down by excluding resource stocks, the de-rating of the market has been justified by the downgrades to earnings. Resource stocks, on the other hand have been re-rated by 25% with PERs falling from 14.6 times to 11 times showing more value and strong earnings expectations.

To answer the question posed in the introduction, Australian equities do appear to be offering good relative value, however this is being driven entirely by the resources sector. Indeed the sector stands out on a global basis by offering not only extremely strong growth, but earnings upgrades in an environment of negative earnings revisions.

The MRE analyst has an overweighting of 37% for the energy and mining sectors with the major diversified miners Lihir Gold Limited (LGL), Worley Parsons Limited (WOR) and Woodside Petroleum Limited (WPL) featuring in the recommended portfolio.