Australia's benchmark stock index may climb as much as 17 per cent by the end of the year as the nation's economy rebounds and concern over a slowdown in China recedes, UBS strategist David Cassidy said.
The S&P/ASX 200 Index, which closed last week at 4,458.40, may rise to 5,200 by year's end, the Sydney-based equity strategist said. It has slumped 8.5 per cent this year, driving valuations to a 16-month low on July 5, as China's slowing growth and Europe's deepening debt crisis fueled speculation a global recovery is faltering.
''Our market is cheap and we can move higher,'' said Mr Cassidy, the No. 1 Australian equity strategist in three of the past five annual fund manager surveys conducted by research company East Coles and published in the Business Review Weekly. ``We might see better performance in the second half if the economy shows improvement and concerns over a China slowdown dissipate.''
Mr Cassidy is ''overweight'' stocks in mining companies and other industries closely tied to economic growth.
The S&P/ASX 200 jumped 31 per cent last year as government stimulus measures and interest rates at a half-century low boosted earnings at companies. Its slump this year has coincided with China's steps to curb rising property prices, credit-agency downgrades of Greece, Spain and Portugal, and signs that a US economic recovery is stalling.
Australian jobs
More evidence Australia's economy is strengthening would help push stocks higher over the next few months, according to Cassidy. A change of government in upcoming elections would have a significant impact on the country's economic situation, he said.
Prime Minister Julia Gillard has called a general election for August 21, betting the ruling Labor Party's record of delivering economic growth during the global financial crisis will help ensure it is returned to power.
''The most likely outcome will be Labor getting re- elected,'' Mr Cassidy said.
Australian jobs growth in June capped the best quarter in almost four years, a statistics bureau report this month showed. Home-loan approvals rose in May for the first time in eight months and consumer confidence surged in July by the most in 13 months, according to a Westpac Banking Corp. and Melbourne Institute survey.
''There's quite a strong rate of employment growth in Australia, which is helping income growth,'' said Mr Cassidy. ''Consumer spending will pick up from where it's been.''
Stocks will also likely climb as investors begin to recognize that China's slowdown is not too concerning, said Cassidy. The Chinese government's efforts to curb asset bubbles will help make the country's growth more sustainable, he said.
China slowdown
China's gross domestic product expanded 10.3 per cent in the second quarter, easing from an 11.9 per cent increase in the previous three months, the statistics bureau said on July 15. Reports this month also showed property prices in 70 Chinese cities fell 0.1 per cent in June from May, snapping 15 months of gains, while bank lending eased.
''The problem in China, and to some extent Australia, is too much growth rather than not enough,'' Mr Cassidy said. ''That's different from the problem in the U.S. and Europe, which is a lack of growth and too much debt.''
The biggest obstacle to a rally in the Australian stock index to as high as to 5,200 would be evidence of a deepening US slowdown, the strategist said. This month, US Federal Reserve members cut their growth forecasts for the world's biggest economy, while separate reports showed retail sales declined and manufacturing contracted.
Further signs of US weakening would hurt global growth as well as knocking confidence in equity markets worldwide, Mr Cassidy said.
Bloomberg News
Advertisement
Loading