Credit Suisse thinks the ASX will blow through 6000 and keep going

A Mariners fan shows their support during the round 25 A-League match between the Central Coast Mariners and the Western Sydney Wanderers at Central Coast Stadium in Gosford. Ashley Feder/Getty Images

The ASX 200 index, barring a catastrophe on the financial markets, will soon breakthrough the 6000 point level for the first time since February 2007.

There is some nervousness about the market reaching this milestone again. Last time the index hit 6000, it kept rising before dropping like a stone. This time, however, will be a different story.

“Comparing the current environment to that of eight years ago suggests Aussie stocks are on a more sustainable footing now,” says Hasan Tevfik at Credit Suisse. “Valuations are more attractive, balance sheets are stronger and the RBA is cutting rates, not raising them.”

The S&P ASX 200 closed the week on Friday up about 1.2% at 5,968.4, just 31.6 points under the 6000 mark. The market has gained about 10% since the start of this calendar year after a slow 12 months in 2014.

And Australian equities are expected to keep going when it breaks through 6000 points. Credit Suisse has raised its ASX 200 year-end index target to 6500 from 6000.

The new forecast suggests investors in local equities should get about 25% in total returns in calendar 2015.

“Not only will Australian equities become more attractive to domestic income seeking investors, we believe Aussie stocks will continue to remain attractive to the growing pool of global income seeking investors,” Tevfik says.

Last time the ASX 200 hit 6000 it had gained 23% in the preceding 12 months, and was looking very much like it was in the final stages of a bull run.

“With the help of hindsight, the first breach of 6000 was an ideal time to sell, not buy,” says Tevfik. “The bull market back then continued for another 10-15% before stock indices collapsed and wreaked carnage on Aussie saving pools. So you can understand why many investors are uncomfortable with this 6000.”

But this time Australian equities on lower valuations, have less leveraged balance sheets and the RBA is cutting rates not raising them from a high

“Aussie equities are on firmer footing this time around,” says Tevfik. “We expect stocks will continue to rally and are supported by lower RBA (Reserve Bank) rates, solid FCF (Free cash flow) growth and cheap relative valuations.”

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