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.