Australian stocks have enjoyed solid gains amid the party in global equities, rising around 20 percent over the past six months, however, one strategist fears the rally could be short-lived.
The rally in Aussie equities is threatened by high valuations and the unwinding of defensive plays like banks and telcos, which have in the first place fueled this bull run, said this analyst.
"The real problem will likely be in the banks, not miners, over the coming quarters. The major Australian banks have been a popular trade due to the scramble for yield, but valuations are very stretched and price itself has gone parabolic," Nicholas Ferres, investment director at Eastspring Investments, told CNBC.
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For example, the country's biggest lender Commonwealth Bank of Australia (CBA), shares of which have risen 27 percent year to date, is currently trading at 3.5 times price-to-tangible book and 16.3 times earnings - compared to a low of 13 times earnings seen in the past year.
Australia's big four lenders, which are expected to post record profits in the first half, according to Reuters, are luring investors in search of yield as they offer attractive dividends. CBA, for example, has a dividend yield of 5 percent.
"Valuations of Australian banks would even make some of the much loved ASEAN banks blush," he said, adding that they are very expensive on a global basis given high household leverage and weak credit growth in the country. Australian financials are trading at a 12-month forward price to earnings ratio of 14.2, higher than a historical average of around 11.5, according to Eastspring Investments.