The Australian sharemarket will continue to produce good returns in the financial year ahead, according to most of the investment market forecasts that have appeared in recent weeks.
Other consensus views are that cash rates will stay low and that Australian government bonds will produce negative returns.
Opportunities may emerge in the small cap sector, which some commentators believe has been oversold.
Some commentators expect international sharemarkets to outperform the local market.
Shane Oliver, head of investment strategy at AMP Capital: Oliver says that despite a lengthy list of worries, including Brexit, Trump and “messy” Australian growth, the past financial year saw strong returns for diversified investors as shares recovered from a rough time in 2015/16.
Returns are likely to slow this year but remain solid. Global growth is good and this should underpin profit growth. There are minimal signs of broad-based economic excess that point to a peak in the global growth cycle.
There have been pockets of excess. Arguably, corporate debt growth has been too strong in the US and China, and the Sydney and Melbourne property markets have been too hot. But excesses have not been broad based.
Global monetary policy is likely to remain relatively easy despite a gradual tightening.
Inflationary pressures are low. There is a risk that the next Fed rate hike won’t occur until 2018, the ECB’s exit from ultra-easy monetary policy will likely be very slow, the Reserve Bank f Australia is still some time away from tightening and Bank of Japan tightening is likely years away.
Share valuations are not excessive. Price to earnings are a bit above long-term averages but this is not unusual for a low inflationary environment.
After the strong overall investment returns seen over the past year, some slowing is likely in the year ahead. Share markets are no longer universally cheap and the crowd is not as negative as a year ago.
Cash and term deposit returns are likely to remain poor at around two per cent.
A gradual rise in bond yields will result in capital losses and another year of poor returns from bonds is likely. Corporate debt should provide OK returns.
Unlisted commercial property and infrastructure are likely to benefit from the ongoing search for yield. And sold economic growth.
Residential property returns are likely to be mixed, with Sydney and Melbourne slowing, Perth and Darwin bottoming and other cities making modest gains.
Expect a potential share market correction in the seasonally weak period out to October but the rising trend in shares is likely to continue as shares are OK value, monetary conditions are likely to remain relatively easy and continuing reasonable economic growth should help profits.
AMP Capital favours global shares, particularly outside the US over Australian shares.
CommSec: “We expect economic growth of around three per cent in 2017/18. Infrastructure will be a key driver of growth in Australia, alongside exports, while home building will continue, especially in Sydney, Melbourne and Brisbane,” CommSec says.
Underlying inflation will be around two per cent and unemployment may ease.
The S&P/ASX All Ordinaries Index will be near 5900 to 6100 points at the end of December and 6000 to 6200 points by the end of June next year (the index is currently around 5840). This suggest sharemarket growth of 2.7 per cent to 6.2 per cent.
Home prices nationally are likely to grow five to seven per cent.
The low inflation, low interest rate environment is entrenched, meaning that lower nominal investment returns are here to stay.
Jamie Nicol, chief investment officer DNR Capital: Global equity markets have reached an all-time high but global growth is sustainable and company valuations are fair.
We are optimistic about global growth prospects after reviewing key asset classes and market trends, such as the potential for expansion of the US manufacturing sector and Australia’s rising commodity process.
Australian equity market valuations reflect improving business conditions since December, with the exception of retail and manufacturing.
Business confidence is strong, we are seeing a pick-up in mining activity, travel remains strong, export sectors like agriculture and tourism are performing well, and infrastructure projects are accelerating.
Wilson Asset Management: Our overall view of the Australian sharemarket in the short term is bullish. The equity market will continue to rise this financial year. We expect resource company earnings growth to continue and select businesses experiencing growth in the current economic climate will outperform.
Over the medium to longer term our outlook is more cautions, given that we are in the mature stages of this bull market. The average bull market lasts five years. The current one, which started in March 2009, is now more than eight years old.
Retail stocks will struggle. With consumer confidence weakened by out-of-cycle rate rises and stagnating wages growth, companies exposed to discretionary consumer spending are struggling. Retail stocks in particular are floundering in the current environment, with footwear retailer RCG Corp and luxury brand Oroton Group two recent high-profile examples.
Small cap companies have underperformed relative to their large cap peers. However, with banks and resource stocks becoming less attractive, we believe investors will again seek growth in smaller, cheaper stocks, which will drive small caps’ performance in the near term.
Cuffelinks reader survey: A poll of 400 readers revealed that investors expect international equities to be the top-performing asset, followed by Australian small caps and the board Australian equity market.
Surprisingly, expectations for growth in the residential property market are low, despite all the money being poured in there.