The S&P/ASX 200 is trading at 8388 at the time of writing and is tracking very nicely to close at a new record high today. Things have literally never been so good for Aussie investors. It could be argued these are the main reasons for recent share price strength:
1. China Stimulus
In September, Beijing announced the first of several initiatives to boost the Chinese economy. These, and further promised measures to come, are aimed at boosting consumption, reversing the slide in property prices, and alleviating the burden on heavily indebted local governments and property developers. A strong Chinese economy is generally expected to benefit economic growth here and around the world.
2. The Trump Trade
The Trump + Red Sweep in the recent US elections provided a nice bump for several key S&P/ASX 200 index constituents, particularly those with substantial US earnings, but Aussie banks have also hitched a ride on US bank stocks that are seen as major beneficiaries. US fiscal policy is expected to be expansionary moving forward, and despite the threat of a potential trade war between the US and China, the US presidential result is generally considered to be the most positive of the potential outcomes for the global economy.
3. No Landing Scenario
More generally, there is a growing feeling among economists and research analysts that we’re in for a ‘no landing’ scenario, that is, the economic rebound from after the COVID-19 pandemic largely continues despite central banks running higher interest rates to combat the inflation that it caused. Further, rates are now generally being dialled down from restrictive settings in most economies, and this could help sustain global economic growth even further.
How 2025 is shaping up for the Aussie economy
In a research note released earlier this week, Morgan Stanley predicted that global economic growth would be a healthy 3% in 2025, with the USA driving “the bulk of it”. In 2025, global growth will slow (from 3.2% in 2024) “but not be derailed” the broker said.
Turning closer to home, Morgan Stanley predicts that 2025 will also be a sound growth period for the Australian economy with tailwinds from fiscal spending in the lead-up to the next Federal election, a strong employment market, and modest interest rate cuts from the RBA likely beginning in May.
So for 2025 we hold off on calling the Australian landing just yet.
–Morgan Stanley, 2025 Australia Macro+ Outlook
Resources could be 2025’s big winners
On the topic of China, Morgan Stanley notes it could be a net-flat result in 2025 as Beijing aims to mitigate the negative impact of new US tariffs by ramping up its own economic stimulus measures.
If this scenario plays out, Australian resources companies could be big winners, notes the broker. Morgan Stanley describes its exposure to Australian resources companies as “quite spread”, but that it favours the large, diversified miners, gold, and energy stocks (including uranium).
Morgan Stanley presently has OVERWEIGHT ratings (its highest conviction rating) on large, diversified miners BHP Group (ASX: BHP), Rio Tinto (ASX: RIO), and Mineral Resources (ASX: MIN). It also likes Nickel Industries (ASX: NIC) (nickel exposure only). In energy it likes Whitehaven Coal (ASX: WHC) and Paladin Energy (ASX: PDN) (uranium).
Other areas of the Australian stock market Morgan Stanley would be “Overweight” in 2025 include telecommunications, infrastructure and utilities, real estate, and health care. It prefers to be “Underweight” sectors like financials (banks, insurance and diversified financials), industrials and transport, consumer-related, and housing linked.
Exhibit 18: MS Australia Macro+ Model Portfolio Sector Skews - overweight Defensive Industrials through Telcos, Infra and Utilities. Energy remains our preferred exposure in Resources, whilst holding active underweight in Banks. Source: Bloomberg, Morgan Stanley Research. Data as at November 13, 2024. (From: “2025 Australia Macro+ Outlook, It's Tricky...”, Morgan Stanley Research, November 18 2024) (click here for full size image)
Further (modest) upside for Australian stocks in 2025
S&P/ASX 200 price chart
Morgan Stanley notes Aussie stocks have exceeded its forecast in 2024 but without delivering on the earnings growth the broker had forecast at the start of the year. Their original 2024 S&P/ASX 200 target was 8,100, but it’s nearly 300 points or roughly 4% higher than that today. The Australian stock market missed its earnings growth expectations by around 13% this year, concludes Morgan Stanley.
But the good news is it should make this up to a large extent in 2025 due to the factors mentioned above. Morgan Stanley tips S&P/ASX 200 companies will grow their earnings by around 10% in 2025, helping the benchmark index to reach the broker’s 8,500 end-of-year target.
It’s important to remember that targets like these are made on an ex-dividend basis. As stocks pay dividends, their share price falls. So, whilst Morgan Stanley’s 2025 target sounds like slim pickings, one should add in the 4.2% dividend yield also forecast. The total shareholder return (“TSR”) forecast for Aussie stocks in 2025 is therefore closer to 5.5%.
This would be a moderately below-average performance if it were to come to fruition, given the average annual TSR for the S&P/ASX200 over the last 20 years closer to 9.6%.
S&P/ASX 200 Total Shareholder Return ("TSR") Since 2000 (click here for full size image)
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
Carl has over 30-years investing experience and has helped investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl has a passion for technical analysis and has taught his unique brand of price-action trend following to thousands of Aussie investors.
........
Investing is risky. Inevitably you will endure losses. If you can't cope with losing, don't invest.
Never miss an update
Get the latest insights from me in your inbox when they’re published.
Sign In or Join Free to follow and be notified when I next publish
Carl has over 30-years investing experience and has helped investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl...
Carl has over 30-years investing experience and has helped investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl...
%20Since%202000.png)
%20Since%202000.png)
