Australia | Jun 23 2006
By Greg Peel
Warning: No stock broker will ever tell you the market is going down.
One of the more astute economists in town, CommSec’s Craig James, has reflected on three years of 20%-ish Australian stock market returns and decided the glory days have had their run for now. When you think of it, says James, we’ve simply made up for the previous three years.
James believes the market will provide more "normal" returns from here on. The global economy will remain firm, but unremarkable. Australia will also be "good but not great". Firmer productivity growth should see Australia clock up around 3% economic growth, but increasing inflationary pressures and higher global rates will see share markets face competition from other asset classes. CommSec is now tipping 5250 for the ASX200 by year end, and 5400 by June, 2007.
China will again dominate the picture, James believes, because industrialisation "has only just begun". Washing machines, refrigerators, cars. Stay overweight resources, says James.
The rest of Asia and the Middle East will also be in the frame, with increased consumer spending and solid economic momentum. The risk is only that central banks overdo the tightening thing.
"Analyst upgrades are positive, corporate downgrades have been thin on the ground, economic growth looks good, and there are no direct signs of cost and margin pressures as yet!", says JP Morgan, and you can almost hear the sigh of relief.
FY07 earnings growth expectations for the Australian stock market were 9% in May, and 15.2% in June. JP Morgan called the market "toppy" on May 15 and now the analysts are calling it good value, despite the fact that BHP Billiton (BHP) dominates earnings upgrades. They believe earnings upgrades can be sustained.
As yet, no Australian broker has called a Sell.