Oz Shares Now Fairly Valued, CommBank Says

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By Robert Rudnicki

Now the dust appears to have settled a bit following the storm caused by the recent share market correction, the analysts at Commonwealth Bank say the market is now fairly valued.

The strong run of the first four months of 2006 left shares "expensive", but the recent drop has pulled the price earnings ratio back to its long term average of 15.8x, from 16.3x, the analysts observe.

With this in mind, and with Australian companies continuing to report "solid profit gains," the analysts expect the S&P/ASX200 index to hit 5,350 by year end, which would be a 12% gain over 2006, and well up from the current 5,105.

As far as sectors are concerned, CBA recommends Overweight positions in banks and diversified financials, as well as resources, retail and infrastructure.

The bank recommends Underweight positions in utilities, materials, transport, food and beverages and gaming.

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