Credit Sussie has cut its ASX 200 index target to 6000 by December this year.
The investment bank says its previous target of 6500 is now probably out of reach.
The S&P ASX 200 closed yesterday at 5,686.90, up just 4.5% since the close of calendar 2014. And most of that rise was made up in just a few days of trading last week.
“After a strong start to the year, Aussie equities endured the double headwinds of rising global bond yields and considerable uncertainty over the future of the Eurozone,” Credit Sussie says in a note to clients.
“Current valuations are back down to average levels, but we expect the combination of RBA rate cuts, an unusually low cost of debt and solid free cash flow growth to be enough to support a re-rating from here.”
Analysts Hasan Tevfi, Damien Boey and Gretel Janu say they still have a positive outlook.
“The cost of debt will remain low,” they write. “This means cash rates around the world will not rise materially (and potentially fall in Australia), government bond yields will remain at or around current low levels and credit spreads will remain tight or even narrow further.”
The analysts expect double digit free cash-flow growth for the next 12 months.
“The combination of these two import drivers should be enough to make Aussie equities a relatively attractive asset,” they write.
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