For the first time since February 2008, Australia’s benchmark stock market index, the ASX 200, is now back above 6,000 points.
From the lows struck in February 2016, the index has rallied by 27.8%, extending its gain from the depths of the global financial crisis to 92.8%.
Having broken above a level that it has struggled to overcome in the past, many are now wondering whether the move higher can continue.
Hasan Tevfik and Peter Liu, research analysts at Credit Suisse, reckon it will.
“While Aussie equities are due a pause, we think the medium-term backdrop remains positive for the asset class,” the pair say. “There is more bull to come.”
To Tevfik and Liu, there’s still plenty of fuel in the tank to push the index higher. They forecast that the index will lift to 6,500 points by the end of 2018 thanks to steady interest rates and the likelihood of stronger corporate profits.
“Australian corporate profits have been in recovery mode for over a year, and we are now at that point of the cycle when the RBA has previously raised rates. But as it highlighted [earlier this week], our central bank remains firmly on hold because its inflation objective is not being met,” they say.
“Without tighter policy, equity valuations should remain at their elevated levels, or re-rate further.”
Along with accomodative interest rate settings, the duo expect stocks to be underpinned by solid growth in corporate profits.
“The rising tide of corporate profits continues to support our bullish outlook,” they say.
“From here we expect solid global growth and early signs of a capex recovery in Australia will continue to propel Aussie earnings per share higher.
“While we expect a moderation in the pace of earnings growth, it is too early to expect a decline. Our outlook is for 6-7% EPS growth for FY18 and a similar pace in FY19.”
While past performance is not indicative of future returns, Tevfik and Liu have produced this interesting chart to show how the current bull market in Australian stocks compares to those seen in the past.
It’s still small in comparison to previous bull markets, but one that Credit Suisse clearly expects will continue to grow in the year ahead.
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