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Leading market and currency watchers say the Australian stock market is likely to outperform other major financial markets in 2024 and the Australian dollar will trade higher against the greenback with or without interest rate cuts.
Key points:
ASX 200 could hit all-time high in 2024
Australian dollar likely to continue rising
But a recession is not ruled out as economic uncertainty looms.
The Australian stock market significantly underperformed other markets around the world in 2023.
The Australian Stock Exchange (ASX) rose over the year, but much less compared to US indices such as the Dow, S&P 500 and, in particular, the tech-heavy Nasdaq Composite.
But analysts say there is a good chance the ASX will outperform this year.
End 2024 forecast for ASX 200, S&P 500 and Australian dollar
AMP forecasts the ASX 200 will end the year at 7,775 points, returning 9 per cent in 2024 including dividends, and the S&P 500 will reach 4,950 points.
Tribeca Capital expects the ASX 200 to reach 8,200 points (around 10 per cent growth excluding dividends) and the S&P 500 to exceed 4,900 points.
While NAB predicts the Australian dollar will trade around 73 US cents by the end of 2024, Betashares believes it could rise further, reaching 75 US cents, as the dollar is expected to continue to moderate.
Jun Bei Liu manages more than $800 million in funds and assets at Tribeca Capital.(ABC News: John Gunn)
“I expect the ASX to outperform the US market as the industrial and resource sectors outperform the growth sectors,” Tribeca Capital portfolio manager Jun Bei Liu told ABC.
“China’s return to GDP growth will be the key driver of commodity consumption, as well as the strength of the Australian dollar.
“The cheaper valuation of the Australian market is also another key reason for the expected outperformance.”
Betashares chief economist David Bassanese says another reason for the outperformance could be that “large-cap U.S. technology stocks have become relatively expensive.”
AMP chief economist Shane Oliver agrees with the likelihood of ASX outperformance, but with a caveat.
AMP chief economist Shane Oliver warns a recession is a key risk that could derail expected gains on the ASX.(ABC News: John Gunn)
“Australian shares are likely to outperform global shares once dividends are allowed, having underperformed in 2023, helped by somewhat more attractive valuations and, later in the year, easing concerns about growth Chinese and the Australian consumer,” he told ABC.
“However, a recession could threaten this.”
Indeed, Dr Oliver’s forecast includes a 10 per cent correction down the road, taking the ASX 200 to a low of around 6,700 before it rises to a record high later in the year.
Similarly, for the Australian dollar, Dr Oliver can see a low of around 64 cents, before ending the year around 72 cents.
What will drive financial markets and currencies in 2024?
The Chinese economy, interest rates, geopolitics and corporate profits are likely to be the big drivers of Australian and major global stock markets and the Australian dollar in 2024, analysts say.
“If China recovers quickly, as we saw in early 2023, we are likely to see a significant improvement in the Australian market and the Australian dollar,” Liu said.
The Chinese economy is on track to meet the government’s 2023 growth target, reflecting the post-COVID recovery, but has been slowing significantly over the years.
Real GDP is projected to grow 5.4 percent in 2023 and slow to 4.6 percent in 2024 amid continued weakness in the real estate sector and weakened external demand, according to the International Monetary Fund (IMF). ).
Central banks around the world have been controlling inflation by raising interest rates, and it seems to be working.
Global stocks rallied in December on hopes of falling borrowing costs in 2024.
Although, historically, equity markets tend to fall after central banks start cutting rates, according to National Australia Bank’s Gemma Dale, because this is associated with a deteriorating economy and worsening trading conditions.
Nabtrade boss Gemma Dale says Wall Street is rallying on hopes of rate cuts in 2024.(ABC News: John Gunn)
“Currently, US (and other) markets are recovering on potential cuts, but this seems very optimistic about historical trends,” he told ABC.
“Our expectation is that the US (and Australian) economy will weaken, leading to falling profits for companies that are currently unpriced in stock markets that continue to expect a (very) soft landing.
“For the AUD (Australian dollar), the Fed is likely to push the USD lower, while the RBA may take a ‘higher for longer’ approach, putting a floor under the AUD and some bullish pressure.”
The recession is still in play
According to analysts, the risks for both equity markets and currency markets remain high.
David Bassanese manages over $33 billion in funds for over one million clients at Betashares.(ABC News: Dan Irvine)
“The positive side is a strong Chinese economic recovery. The negative side is a global recession,” Bassanese said.
Dr Oliver believes the main downside risks are persistent inflation, a weaker Chinese economy and geopolitical tensions.
“Inflation could prove difficult, leading to further rate hikes by central banks globally and the global and Australian economies could fall into a deep recession.
“The Chinese economy could weaken dramatically and various geopolitical events ranging from the Taiwanese elections and a possible US government shutdown in January to the US presidential election in November (could affect markets).”
On the other hand, he said falling inflation, lower interest rates and stronger-than-expected growth could push stock markets and the Australian dollar higher than AMP was currently forecasting.
Dale said the biggest risks to the ASX were the financial and materials outlook.
“There is concern in the financial sector that banks have reached their maximum profitability and that, as higher rates begin to bite and the economy weakens, delinquencies will increase,” he warned.
“This was also the concern heading into 2023. And it was evident in bank stock prices through (2023), which remained fairly stable until the most recent rally.
“Materials have not benefited from China’s long-awaited reopening, but the size of investment in renewable energy as a result of the (US) Inflation Reduction Act is giving rise to hopes of a new boom of raw materials, despite the recent falls in lithium prices. .
“NAB’s biggest concern for the AUD is the return of US exceptionalism: if there is a material deterioration in the global outlook, the USD may once again become the ‘safe haven’ currency and gain more support than expected.”
Will the RBA and other major central banks start cutting interest rates?
The Reserve Bank in the minutes of its latest meeting revealed that it considered another rate hike at the December policy meeting but decided to keep rates unchanged at a 12-year high of 4.35 per cent.
Charging…
This was largely to try to avoid the possibility of a further increase in the unemployment rate in the future.
Core inflation in Australia remained higher than in several other similar economies, the RBA warned, adding there was a risk it would take longer than expected for inflation to fall to its 2.5 per cent target.
While the market is betting that interest rates have peaked in Australia, NAB believes there is still a 50:50 swing of one more rate hike before any rate cuts later in 2024.
“That’s a fairly dovish approach relative to expectations in the US, where rates rose earlier and are currently higher, but the market is pricing in earlier and more aggressive cuts. That will support AUD,” Ms. Go ahead.
Dr. Oliver expects several major central banks to begin cutting rates in the first half of 2024, including the European Central Bank (around April), the US Federal Reserve (around May), the Bank of England (around around June) and the RBA (around May). around June).
“Stocks may not respond positively initially to the central bank’s rate cuts because economic activity is also likely to be weak initially, but they will benefit during the second half of the year as the rate cuts eventually boost expectations.” of stronger growth in the future,” he said.
However, Ms Liu has a different opinion when it comes to rate cuts.
“Our base case is that there will be no rate cuts (in Australia) next year, however even discussion of potential rate cuts will drive markets higher,” he said.
“Australia will be behind the United States in terms of rate cuts. This should underpin a strong Australian dollar.”
Australian shares could hit all-time high in 2024, but potential recession threatens those prospects