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Research by Craigs Investments Partners said while risks remain and investors have to be ''selective'', medium-term prospects are ''optimistic''. Stock valuations are reasonable and dividend yields look ''increasingly attractive''.
Australia's cash rate had been slashed from 4.75% 18 months ago to 3% and more cuts were expected, meaning bank deposit rates had also fallen, Craigs broker Peter McIntyre said.
''Aside from the last few months, the Australian sharemarket has been a difficult place to invest in recent years,'' he said.
However, as Australia's largest trading partner, demand from China is expected to increase this year as its gross domestic product growth is forecast to head back to 8.5% during the second half of 2013.
''China has slowed to its lowest level of growth for some time and the Australian [equities market] has been out of favour in the eyes of investors who have held a negative view on China,'' he said.
New Zealand investors also had to take into consideration the exchange rate with Australia, which could undermine returns on dividends, he emphasised.
Stock picks by Craigs included Adelaide Brighton (construction), Orica (mining services and chemicals), Rio Tinto (mining), Seek (job ads) and the ANZ Bank.
Mr McIntyre said sentiment towards the mining sector and commodities was improving, as China had ''destocked'' last year, but its inventory cycle was now showing signs of being more supportive of growth.
Craigs was bullish on commodities such as copper and alumina, both having supply constraints to China, the platinum group of metals, whose South African disruptions last year could be boosted by the auto-industry restocking this year, and globally, crude oil prices would rise with accelerating world-wide economic growth in the second half of the year.
On the negative side, bearish behaviour was expected from iron ore, with a 100 million-tonne oversupply expected to undermine otherwise rising prices, nickel could be buoyed by new technology but dragged down by new project disruption, while mineral sands carried some weakness because high inventories were still held.
Craigs pushed out expectations on global spot gold prices, forecasting a record $US2000 ($NZ2389) per ounce by the end of the year, based on expectations of central bank buying and low interest rates.
Mr McIntyre noted that for investors, one-year bank deposits had been getting 6% interest 18 months ago, but rates were now at 4.15% and the yield gap between those deposits and shares had widened to more than 2%, for those investors who could use franking credits.
''As Australian interest rates continue to fall, we may see a shift in investor focus towards shares, as investors look for income,'' Mr McIntyre said.
The ASX 200 index had ''rebounded strongly'', up 9.7% since mid-November, but was still about 5% below its 20-year price earnings ratio.
By comparison, New Zealand's NZX50 was trading above its 20-year average by about 10%, Mr McIntyre said.
''While the Australian market is far from looking like a bargain, it doesn't look overly expensive, either,'' Mr McIntyre said.