Experts see some upside for Aussie stocks, despite the current turbulent economic times.
"Our expectation of a softer Australian dollar in the second half of 2011 (92 US cents by year end) should boost interest from foreign investors - a group owning 40 to 45 per cent of our shares - and high corporate profits do point to a firmer sharemarket as well," says CommSec's Craig James, who sees the market dipping to 4900 mid-year and then recovering slightly by the end of December.
Toby Walker, Australian equity strategist at Morgan Stanley, says the investment house has not lowered its view of the stockmarket on the back of recent offshore events, including the Japanese catastrophe.
He says Morgan Stanley believes domestic market fundamentals remain intact.
"We are still looking for a reasonable year for equities this year, driven by earnings growth, particularly mining earnings growth," Walker says.
He adds that commodity price rises already seen are flowing into mining earnings but capital expenditure (capex), particularly mining capex, has yet to flow to the domestic sectors that service the resources industry.
"We are looking for 20 per cent growth this year, and not much [price-earnings] multiple expansion," Walker says, suggesting valuations remain attractively low.
"Our index target is 5350."
Last week BHP said it has approved US$9.5 billion worth of investments in its iron ore and coal operations, including US$6.6 billion to continue production growth at its West Australian iron ore operations.
Deutsche Bank equities strategist Tim Baker says the increased capex will help drive consumer spending, which in turn will help drive a more robust showing by industrial companies which have largely lagged their resources counterparts in earnings and share price growth.
Baker sees the benchmark stocks index at 5500 by the end of the calendar year, making him the biggest bull of the four forecasters polled here.
He says the forecast is driven, in part, by the market's relatively cheap price-earnings multiple, well below its traditional 14 or 15 times forward earnings.
"We're at a very attractive valuation of about 11 times," Baker says.
He adds that strong commodities prices will support the economy, and the stronger economy will help drive the keenly awaited pick-up in the industrial sector.
Source: Morningstar
Sunday, March 27, 2011
Subdued outlook for Aussie stocks
By Victoria Tait *
Natural disasters in Japan, New Zealand and Australia, as well as ongoing fighting in the Middle East and North Africa, have led some economists and strategists to lower their 2011 forecasts for Australian stocks.
Calendar year 2011 has brought one disaster after another with floods in Australia, earthquakes in New Zealand, and most recently, the quake, tsunami and nuclear damage in Japan rocking the region.
"The cause and effect is that GDP in Australia is going to be fairly soft," Morningstar's head of equity strategy Ross Bird says.
As a result, Bird has scaled down his forecast for the S&P/ASX 200 index to around 5100 by the end of calendar 2011 from his 5300 forecast set out in December.
"It's just because of the lost economic opportunity arising from the natural disasters. Some of that will be added back later in the year as reconstruction commences," he says.
CommSec chief economist Craig James says recent events have hit investor sentiment, resulting in a downward revision to his forecast.
"The Japanese earthquake, tsunami and nuclear shock have clearly had a depressing influence on investor confidence, together with air strikes against Libya," he says.
James says that even without events in Japan and North Africa, which have dominated headlines for the past few weeks, foreign investors' enthusiasm for Australian shares has waned due to a stalled economy.
The mining resource rent tax and the proposed carbon tax are expected to further dampen the nation's economic outlook, he says. On top of all that, the strong Australian dollar is making domestic shares relatively expensive, he says.
Even China, the bright spot, may not be enough to restore enthusiasm.
"Sure, China continues to expand, boosting earnings and profits for resource companies. But mining represents just 9 per cent of the economy," James says.
"It is the other 91 per cent that investors are worried about."
CommSec expects the S&P/ASX 200 index to stand at about 4900 points by the middle of the year and 5200 by the end of the year.
* Victoria Tait is Morningstar's online stocks editor.
Natural disasters in Japan, New Zealand and Australia, as well as ongoing fighting in the Middle East and North Africa, have led some economists and strategists to lower their 2011 forecasts for Australian stocks.
Calendar year 2011 has brought one disaster after another with floods in Australia, earthquakes in New Zealand, and most recently, the quake, tsunami and nuclear damage in Japan rocking the region.
"The cause and effect is that GDP in Australia is going to be fairly soft," Morningstar's head of equity strategy Ross Bird says.
As a result, Bird has scaled down his forecast for the S&P/ASX 200 index to around 5100 by the end of calendar 2011 from his 5300 forecast set out in December.
"It's just because of the lost economic opportunity arising from the natural disasters. Some of that will be added back later in the year as reconstruction commences," he says.
CommSec chief economist Craig James says recent events have hit investor sentiment, resulting in a downward revision to his forecast.
"The Japanese earthquake, tsunami and nuclear shock have clearly had a depressing influence on investor confidence, together with air strikes against Libya," he says.
James says that even without events in Japan and North Africa, which have dominated headlines for the past few weeks, foreign investors' enthusiasm for Australian shares has waned due to a stalled economy.
The mining resource rent tax and the proposed carbon tax are expected to further dampen the nation's economic outlook, he says. On top of all that, the strong Australian dollar is making domestic shares relatively expensive, he says.
Even China, the bright spot, may not be enough to restore enthusiasm.
"Sure, China continues to expand, boosting earnings and profits for resource companies. But mining represents just 9 per cent of the economy," James says.
"It is the other 91 per cent that investors are worried about."
CommSec expects the S&P/ASX 200 index to stand at about 4900 points by the middle of the year and 5200 by the end of the year.
* Victoria Tait is Morningstar's online stocks editor.
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