There is a growing belief that the equity market is ignoring downside risks because the ASX200 is not far from its record high. We disagree. The equity market is absorbing downside risk and these two are very different things. The dispersion of sector returns across and within the Australian market and the broad decline in valuation ratios is ample evidence of this. Risks may morph into something more sinister, but its hard to see the 50%+ year to date return differential between Energy and Info Tech as a market ignoring upside and downside risks respectively.
