This year I am a little late in dusting off the crystal ball but it’s now time once again to study the tea leaves, throw some bones over my shoulder and try and forecast how the ASX All Ordinaries Index & S&P/ASX 200 Index may perform this year. Firstly let me stress, as I have done many times in the past, that none of us mere mortals have the ability to see into the future and so any stock market forecast is a calculated or semi-calculated guess.
Also as a long term investor my aim is to just get the trend for the year right without trying to be too precise or set-up short term positions.
Last year for example I expected the ASX All Ordinaries & S&P/ASX 200 to rise (see Australian stock market outlook & forecast for 2013) so I got the trend right, however the market rose more than I thought so technically speaking I may have be able to end the year with higher unrealized gains.
But recently the market has fallen back and it’s now around the level I expected it to finish at in 2013, so basically there has been no net effect on my portfolio. Much the same happened in 2012 – I got the overall trend right but the market moved more than I expected.
So in 2014 I will be pleased enough if I can just spot in which direction the market will move. I will however estimate the range I expect the All Ords/ASX 200 to finish within, but the chances of that being correct are not very high given my performance over the last couple of years.
As readers of my articles over the last few years will know, I am pessimistic regarding the outlook for the Chinese economy and in turn this translates into being pessimistic in regards to the outlook for the Australian economy.
Some will say that the Chinese and Australian economies are doing fine, but I would reply that if you look at the stock market that certainly is not what investors are seeing.
Some business reporters, market analysts and brokers may have got excited about the gains the Australian stock market posted last year, but the reality is still way below the last bull market high set in 2007 and not much higher than the level it reached in 2009.
Another point worth noting is the ASX All Ords & ASX 200 both underperformed the Dow Jones Industrial Average Index (DJIA), the Nikkei 225, the FTSE 100, DAX and many other major stock markets.
On the other hand mining exports have held up better than I expected but I am not sure that’s necessarily a positive especially if they have been supported by over-investment in infrastructure and housing in China for example.
Looking at some major economies besides China my view is that the US economy is just part of the way through a decade or more of tough economic times, the EU is probably in a similar position whereas Japan return to stable GDP growth over the next few years.
Looking closer at the Australian economy I believe it is pretty clear it has already entered a downturn as I have written about before. I also believe that in the years ahead relatively high labour costs, stalled productivity gains and high levels of debt are going to put a drag on growth.
All this leads me to conclude that there is little reason for a broad-based rally to drive the Australian market much higher than it finished last year and if it were to hang onto the gains posted last year, then that would be a good outcome from my perspective.
In more detailed terms I expect the ASX All Ords/ASX 200 to end 2014 within the 4800-5200 range and at this stage my guess (and it is a guess) is that it will end at the lower end of that range.
So that is my stock market forecast for 2014, so now I welcome any comments or better still, I invite readers to post their own forecast. Let the discussion begin!
This article was written by Greg Atkinson who is the Managing Director of Ohori Capital. Greg is from originally from Sydney but now works and resides in Japan. He can be followed on twitter via GregAtkinson_jp