Credit Suisse is out with its latest Australian investment strategy and they have upgraded their December 2014 forecast for the ASX/200 from 5600 to 6000.
That is a huge increase for a target only six months away and the increase between today’s ASX 200 price of approximately 5400 and 6000 would represent an 11.1% return over the next six months if Credit Suisse is correct.
Driving the increased target is what Credit Suisse analysts Hasan Tevfik and Damien Boey call de-equitisation.
De-equitisation is the process by which equity retiral (via M&A or buybacks) is greater than equity issuance. Tevflik and Boey say that this has been been an “important theme in the US and European equity markets for most of the past ten years”.
Naturally, given it isn’t a concept which has occurred in Australia over the past decade, to many investors this will be a foreign concept. Indeed Tevflik and Hasan say that locally,
Investors have absorbed an average of $47bn net new Aussie equity per year since 2006. They were buyers of $24bn last year. They will not have to buy any this year—we forecast the Australian equity market will de-equitise.
While de-equisation may still seem like an obscure concept it is really just simple supply and demand. Less supply with a fixed, or realistically growing, demand means more competition for the stocks on the market that are left.
Or as Tevflik and Boey say,
M&A has picked up, debt is the preferred form of finance and 21st Century Fox has de-listed. Limited, if any, net equity supply and continued solid demand promise to be positive for index levels. We raise our December 2014 ASX 200 target to 6,000 from 5,600.