By Andrew Nelson

Despite the twists and turns and a few kicks in the pants, 2012 was a pretty good year for equities. Some fairly strong returns were posted on the back of re-rating P/E multiples despite otherwise weak earnings contributions, with forecasts otherwise plagued by downgrades over the course of the year.

In fact, the Australian market re-rated to a far greater extent than most of its global peers despite, for the most part, continuing a protracted run of what were considerably worse earnings outcomes. Thank goodness for the defensive yield theme, as this was the main driver of Australian market performance through most of 2012.

But after all of this P/E re-rating we're left with a market that on most measures seems to be at fair value, so what now?

Analysts from UBS expect 2013 earnings growth in the neighbourhood of 6% although the broker sounds a bit of a cautionary note given consensus estimates were still being actively trimmed as of yesterday. Still, the analysts are pencilling in an ASX/200 target of 4800, which points to an arguably normal 5% capital gain from current levels. For next year, UBS heads in Overweight resources, a little Underweight on the banks and Overweight on value/cyclical industrials as opposed to higher priced industrial safe havens.

There is an upside scenario to the broker's thesis, which is that