Shareswatch Australia

Australian stock market investing, ASX charts, analysis & market forecasts.

Shareswatch Australia header image 2


Australian Stock Market Outlook & Forecast for 2015

January 16th, 2015 · Greg Atkinson · 23 Comments

This year it is going to be tougher than normal to put together a forecast for the Australian stock market simply because we are in the midst of quite a nasty commodities rout. However I been warning for while that a major correction in commodities prices would hit the market so I am going to look through the current turmoil and try to see where the ASX All Ordinaries and S&P/ASX 200 may finish up at the end of the year.

For the last few years I have been cautious even at times bearish, regarding the outlook for the Australian share market and have often predicted the market would finish lower than it actually did and last year was no exception. However in my defence I have generally been spotting the longer term trends a bit better.

For example my somewhat pessimistic overall view of the market has played out over the last few years and despite some bullish calls in the mainstream finance media, the reality is that both the All Ords and ASX 200 are trading back where they were in 2006. Also I have been a commodities bear for some time and have been waving the Baltic Dry Index red flag for at least a year.

Yes it’s true I sold my holdings of BHP Billiton (ASX:BHP) before the share price peaked, but I reckon getting just over $40 a share a few years ago is better than holding them at $27 today. (For the record I am buying small parcels of BHP shares around that price or when they head lower…but this is not investment advice!)

In any case as I have mentioned before, I accepted a long time ago that my short term market predicting skills were as good as my juggling skills so I  try instead to focus on long term trends. Having said that, I do still put together an annual forecasts even if I am simply trying to estimate if the market will finish up or down.

So once more I will (foolishly perhaps) set out my Australian stock market forecast for 2015 but to start with I will review a few long terms ASX charts.

S&P/ASX 200 Index (XJO) 2000-2015 Trend Chart

ASX 200 Index 2001-2015 Trend Chart

I like the above chart because it is fairly simple. It starts off when the XJO (ASX 200) is around 3000 points and finishes when it’s close to 5500 points at the end of 2014. It also highlights that in hindsight, how overbought the market was from say 2006 until it came crashing to earth starting from late in 2007.

Without getting too complex we can make a few observations. Firstly that over the last 15 years the ASX 200 has risen approximately  2500 points which is an average of say 160 points or so per year. (which doesn’t mean much actually).  More interestingly is that the market over that period was up around 84% which gives us an average index gain each year of say around 5.6%.

Now if add dividends (say 4.5% on average across the ASX 200) you reach a figure which is close enough to call 10%. This is significant because 10% is the average long term return per year for the ASX All Ords/ASX 200 or a balanced stocks portfolio.

So from my point of view the market is close to where it should be now and we have finally put most of the excesses of the mining and commodities boom behind us as far as the stock market is concerned. As for the Australian economy, well that will probably deal with the excesses of the mining boom over the next year or so.

My biggest timing error over the last few years was that  I expected the mining boom to come to an end earlier than it did. But the good thing about being a long term investor is that this means you may just miss out means buying right at the market bottom but that’s pretty hard to do anyway.

Now let’s look at another long term trend related ASX chart.

S&P/ASX 200 Index (XJO) 10 Year Trend Chart

ASX 200 10 Year Trend Chart Jan 2015

This 10 year chart of the ASX 200 is also interesting as it starts off just before the market went into the bubble phase, which at the time most thought was the new “norm”. (i.e. the long term China growth narrative) The average gain over this 10 period is about 150 points a year and the long term gain if you add dividends is just under 10% which is not surprising.

Of course if an investor had piled into stocks right at the peak back in 2007, then it will probably be a long time before they see capital gains. But that’s always a danger when we, as investors, jump onto a trend late or into a “hot” investment area.

The key point about the chart above is that it reinforces my view that after more than 5 years, the Australian stock market has set up a base from which to gradually head towards the next market high.

Of course as I look at this chart today I wish I had been more active when the market was below 4500 but I will settle for picking up bargains or under-valued stocks at around 5000 (or lower if possible) and won’t worry too much about not picking the precise market bottom.

Now, before I make my 2015 stock market forecast there is one final chart I wish to discuss.

ASX 200, BHP Billiton, Commonwealth Bank 10 Year Gains Chart

XJO BHP CBA 10 Year Chart Jan 2015

On the chart above I have simply added  share price movements of BHP Billiton (BHP) and the Commonwealth Bank (CBA) onto a 1o year chart of the ASX 200 so we can get some idea of the gains over that period.

What we can note is that even allowing for the fairly recent slump in the BHP share price that it has out-performed the ASX 100 Index over the last 10 years as has the CBA. However the CBA share price has been on the way since around mid 2011 and is still holding up very well. (and better than I expected)

I included this chart mainly to highlight that although there are risks, a few selected ASX 200 stocks can significantly outperform the broader ASX 200 Index itself, although on the flip-side this approach can also deliver the opposite result. It is also an interesting chart because it shows that quite unusually, the major banks (like CBA) and large diversified miners (like BHP) are basically moving  in opposite directions. But I don’t expect that trend will still exist at the end of the year.

So if I look through the current market turmoil and factor in that the commodities selling is probably now entering the over-correction/panic phase then I would say at the end of the year I expect the Australian stock market to finish around 5600, although it may peak above that level along the way. In other words I expect the major mining stocks to recover some ground during the year and that the wave of selling across a range of commodities and commodities related stocks to settle down.

What is likely to hold the market back will be the major banks cooling off a little as property prices soften. In addition I suspect even those most bullish of Australian economic forecasters will grudgingly need to concede that the commodities boom is over and that some years of lower than trend mining investment (and royalties) lay ahead.

In short, despite the current stock market slide I expect that by the end of the year the ASX 200 will return close to the average long term trend (I.e. a 5.5% gain for the Index and 4.5% in dividend yield) plus we may finally see the market breach the 6000 level within the next couple of years.

Yes there are many risks and I’m sure there will be some corrections to test our nerves in the year ahead, but for the first time in a while I am cautiously optimistic about the outlook regarding Australian stocks.

Now over to you!

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


23 responses so far ↓

  • 1 Stillgotshoeson // Jan 23, 2015 at 9:39 pm

    I’m bullish this year. Tending to think we will finish higher than current on the ASX.

    6200 to 6300 during the year with a pull back towards year end with a 5800 to 6000 finish.

    Gold to surpass its record AUD price boosted by a falling dollar.

    .25 to .5 cut in RBA rate over the year as our economy continues to struggle.

    Unemployment to be higher at year end than current.

  • 2 lachlan // Jan 24, 2015 at 10:24 am

    My prediction starts with a general overview.
    Commodities and the AUD,CAD etc have experienced a deep correction. Maybe BHP and RIO are following just behind (caution). Meanwhile the USDX has risen and looks to be in a strong rally. Gold also has recently moved up strongly indicating some signs of flight to safety, not eluding to the apocolypse. There has been no disaster yet in the stock market indexes. Aussie bank stock charts in general look like they can rise a bit more in the first part of 2015.
    I think some signs of distribution were apparent on the Dow and the XJO (back in Sept) nonetheless along with bank stocks I think they will rise a little more to begin with in 2015. The XJO I predict after a decent start will finish the year soft with volatility in play throughout and the same for the Dow. I will guess a finish of 5500 for the XJO. I think the DOW has more potential for a pullback considering its performance of late. It can go higher from here but things are becoming extended. There is more support beneath the XJO. So, I remain long term bullish and currently short term bullish on both these stock markets and elude to weakness later in the year.
    AUD gold will continue higher and begin to consolidate as the markets also begin to likewise later in the year. No idea how high it will go but I will contrast Shoes and predict it to remain below it’s old high in AUDs…hope I am wrong though Shoes.
    The commodities, commod currencies and related shares still need to bounce up and down/find a bottom somewhere and my personal view, not advice, is for cautious accumulation since further downside is possible. If the long term bull trend is invalidated in these currencies I will still see them as a good buy. I will have to review my long term prediction for AUDUSD to hit 1.20 plus however I don’t think technical problem like a violation of 80 long term support means so much. At some point funny money carry will trump the economic deflationary effects.
    An interesting year for king dollar. No signs of stopping just yet.

  • 3 Richard // Jan 25, 2015 at 7:24 pm

    Depends on oil I think.
    There is a reasonable possibility of Oil continuing down in price to may $30 a barrel or even less.
    Could cause mayhem to the economy and if the banks don’t hold up we could have a down year with a sizeable correction.

    I’ll go out on a limb and predict a fall this year with ASX200 finishing around 5000 at the end of the year.

  • 4 Greg Atkinson // Jan 26, 2015 at 8:19 am

    Yes Richard a lot depends on the oil price which I think has just been hit by a similar correction as coal, iron ore, LNG and copper. Most likely in my view (and as often happens during price corrections) the price went too low (below $50 a barrel) and this year will work it’s way higher. So I doubt we will see $20-$30 oil for any extended period.

    Lachlan, the AUD will be interesting to watch this year. A while back it was almost “bulletproof” but it does seem to have lost a lot of gloss recently. If the RBA does cut rates again down it will go I imagine but will that push more money into a possibly over-heated property market?

  • 5 lachlan // Jan 26, 2015 at 9:48 am

    Diesel at the pump is about 1.16 or so now Greg. I was paying 1.55-1.69 not so long ago. Cheap fuel and lower rates etc yes I think the property prices can be kept about where they are at least. The gov/RBA have proven they can do that at least in the residential/cities areas…rural blocks have been soft for years though to note.
    The currencies: I am sure the print fest (to be crass) is not over. It will peak down the track somewhere and blow a bubble in commod currencies. The negative rate policy idea pops up it’s ugly head more and more around the place (globally).

  • 6 Greg Atkinson // Jan 27, 2015 at 8:35 am

    Lachlan the other unknown factor is how the Chinese economy will fare this year. I guess the ECB’s QE experiment should help on the exports side but it still seems very likely that economic growth in China will keep heading towards 6%.

    It could also be the year we see how robust the US economy is as the Fed winds down its own QE party.

  • 7 Matthew // Jan 27, 2015 at 3:24 pm

    Greg I think that this year is the year that nothing will happen before something happens in 2016. The question for me is will the something be a major market correction, or onset of sustainable moderate increases?

    The mixed messages within the market place at the moment are a concern to productivity and returns.

    Commodity falls – have they bottomed out and over corrected? Will they bounce late year?

    I think that Chinas falling demand is being over played. I spend weeks in China every year and there is no slowing in their plans. As Maruis Kloppers says as demand changes from construction to consumerism iron ore will settle at lower, still profitable levels while copper, nickel etc will spike.

    India is a sleeping giant and has been threatening to do something significant with us for years, will that kick in? As high cost African iron ore mines such as the listed AML go into care and maintenance our demand could pick up somewhat.

    And Agriculture seems to be a resurgent sector.

    Finally all hopes of a return to political normality with the end of the R-G-R reign seem to be usurped by a (mentally) unbalanced senate and PM keen to show he still lives in 1979. Both of these things need to be fixed in 2015 for the country to be set on a path forward.

    My picks, with absolutely no level of confidence whatsoever:

    ASX to finish in the range 5,400 – 5,750. If I had to pick an exact number your 5,600 would be pretty close to it.

    Unemployment to finish at 6.4% and be trending back down

    Interest rates unchanged – I can not make a case for a move in either direction.

    Dollar at $0.775 (if interest rates are unchanged) – I think our place in the world is a $0.75 currency, and we are heading back that way

    Inflation 2.3% (unchanged on today, but trending up)

    House prices up 3% nationally, with Melbourne and Sydney cooling

  • 8 Greg Atkinson // Jan 28, 2015 at 8:25 am

    Matthew I think this year we will see how the dust settles or doesn’t settle regarding the sell-off across commodities. I doubt prices will rally back up to the highs of the past years any-time soon so this is certainly going to put a drag on the Australian economy for a while.

    As for the housing market, well this one of the few sectors of the economy yet to turn and I expect it will slide back over the next year or so. Probably nothing severe but a fallback of 5-10% seems possibly.

    Regarding unemployment,I actually this will be higher at the end of the year. Maybe the Australian economy will create jobs to offset the decline in employment in manufacturing & mining/energy, but I doubt it.

  • 9 Matthew // Jan 28, 2015 at 9:23 am

    Hi Greg,

    I don’t see a commodity spike per sae either. You cant keep shipping record volumes at record prices if the demand isn’t there after all! The drag on the economy is most likely to come from constrained government spending off falling revenues than mining sector development, as the majority of the heavy lifting has been done.

    Housing needs a 5% – 10% fall, but I had that pegged for next year not this year. Housing always seems to take an extra year…. The cards are definitely against any wild gains.

    Unemployment I think will peak at around 6.6% – 6.7% mid year from the current 6.1% before dropping back a bit. I think most of the job losses in mining are already present, however 2016 and 2017 as Gorgon, Roy Hill and Wheatstone all wind back coupled with the pull of Ford and Holden could be a different story.

    It is hard to find good news in the market at the moment, and sadly I think the government is indeed the cause of the issues. God help us if they don’t sort it out and he have Bill in the lodge in a couple of years!

  • 10 Stillgotshoeson // Jan 28, 2015 at 11:01 am

    A couple of years ago I said we could have 5 more years of this and my view has not changed.

    Europe is a mess, USA is conflicting data, some months good, some months bad.

    I expect a muddle through this year with government/fed support for various nations to continue and even increase in some cases.

    I still think we will see a major pull back on the DOW and ASX. 2016/2017 a strong possibility.

    US economy is still struggling at the middle class level which is where the bulk of the consumerism should be found. Wage growth is still lacklustre and debts still constraining. Major US bank profits have mainly been from their respective trading arms. (Hence the high DOW)

    AUD falling both helps and hinders our economy. Do we gain as much as we lose for a zero sum gain though? We will see.

    There was an article in theage the other day I saw about a push on reducing/removing penalty rates. If it gains traction and comes to pass it will be a negative influence on our economy. People with less money to spend will spend less money. Growth is generally a result of credit, reduced access to credit due to lower incomes will result in lower growth.

    With nearly 11 months to go of 2015 it could turn out to be a most interesting year economically both local and globally. Part of me wants to cash out and wait, the other part is saying keep toes in the water.

  • 11 Biker // Feb 3, 2015 at 3:00 pm

    “A couple of years ago I said we could have 5 more years of this and my view has not changed…”

    Astonishing. You sound just like my mate, Tony. 😉

  • 12 Greg Atkinson // Feb 6, 2015 at 3:44 pm

    Well Stillgotshoeson the ASX has been on a roll for the last couple of weeks with the XJO now above 5800 but I think it’s probably run up too high to quickly and that pull-back can’t be far away.

    My thinking this year is to sell into the rallies and be very selective with buying.

    Still if the current rally keeps going we may see CBA hit $100 which is something I thought would be a long way off.

    All this makes me a bit nervous and it’s eerily similar to when Macquarie Bank was near $100 in 2007. I do hope history doesn’t repeat itself!

  • 13 Stillgotshoeson // Feb 7, 2015 at 7:38 pm

    “Part of me wants to cash out and wait, the other part is saying keep toes in the water. ”

    Sold out and took profits on EVN, NST and GOR on Friday. SBM did not sell, should have set price .005 lower it seems.

    I have Monday off, will watch the market and decide on any more offloading.

  • 14 lachlan // Feb 21, 2015 at 9:59 am

    stock markets making reaching for new highs again…of course not all time highs for the asx but still. Crumbs Shoes that line is racing in the direction of your predictions

  • 15 Biker // Feb 24, 2015 at 7:25 pm

    Faced with the (joint) responsibility of converting my wife’s Super nest egg into either more property, or shares, we’ve found two recent links particularly interesting, Lachlan:

    http://www.marketwatch.com/story/warren-buffett-on-track-to-win-hedge-fund-bet-2014-12-04

    …and…

    http://www.news.com.au/finance/money/the-market-is-a-drunken-psycho-warren-buffett-reveals-his-investing-secrets/story-e6frfmdr-1227182304217

    Both our thirtieth-aged sons, who own both property and shares… and who have sizeable Super funds and bonds, favour the Buffett Road. I’d definitely favour that avenue if global markets took a major hit. No rush… . It’s a waiting game and our realty rose 6.6% last year. Some of our rents flattened off, but there are still some opportunities in property… definitely not in off-the-plan, where there’s some very dodgy stuff happening… .

  • 16 Greg Atkinson // Feb 28, 2015 at 2:04 pm

    It’s going to be very interesting if the ASX 200 hits and closes above 6000. Some will see that as a very bullish indicator but personally I would see it as a sign that investors are not pricing in risk and that low interest rates are pushing up stock prices (and property prices)too far.

  • 17 Biker // Feb 28, 2015 at 5:42 pm

    Oh dear me!

    http://www.realestateview.com.au/propertydata/auction-results/

    There’s still hope for 2016! 🙂

  • 18 Stillgotshoeson // Feb 28, 2015 at 8:58 pm

    I would see it as at least a short to medium term bullish factor Greg. Just looking at the DOW and how it has risen due to investors chasing any sort of return in an ultra low rate interest environment.

    If rates here fall further we could very well see the same here as higher returns are sort on monies invested.

    Still thinking we will see a new low on both the DOW and ASX before it is all over though. 2016/2017 is my timeframe.

    In reference to the links you provided Biker, I am of the mind that wealth building starts in the earlier years and is built on over the years. Later in life it is wealth preservation and income generation that become the focus.

    Moving funds into the ASX after a big crash and waiting/building on the eventual rise can be a profitable move. That being said the ASX may take some time to recover, ok for the younger ones. Maybe not so for the older ones. It really comes down to personal choice/situation. I’m under 50, still working so I am happy to take a higher risk with a portion of my funds still. Age is catching up and soon I will be more focused on preservation and income generation to fund retirement. An income stream of around $80k a year has been my goal to give up work and see me out until I can have my superannuation. Income will be more my focus than wealth generation. It will still be part of it but not my focus.

  • 19 Biker // Mar 3, 2015 at 3:51 pm

    You should be cheered by new research indicating that coffee prevents blocked arteries, Shoes.

    Yes, steady, regular dependable income during retirement is a worthwhile goal. Some friends who have continually focussed on wealth generation do benefit from an OAP, but it’s little compensation… .

  • 20 Greg Atkinson // Mar 9, 2015 at 10:37 am

    We appear in the midst of a mini-correction now and if my trading ranges are still valid the market could end up back down 5400 at some point.

    I have actually taken a short position against the ASX 200 which is the first time I have even done that as still reckon the market is a touch over-bought.

  • 21 lachlan // Mar 15, 2015 at 6:07 am

    “Some days he gets very enthused and some days he gets very depressed. And when he gets really enthused, if you happen to be trading stocks, you sell to him. And if he gets very depressed, you buy from him.
    “There’s no moral taint attached to that. When people get scared other people get scared, and when they get exhilarated, [other people] get exhilarated.
    “Emotions are contagious, and emotions have no business in investing.”

    That’s an excerpt from your article BP where Warren likens the market to a drunken psycho. I think that’s no doubt the truth of the matter. I think many people know this is true but understanding emotions and mastering them are not quite the same thing. Logically it is impossible also for every player to master their emotions…and therefore master the market.

    At the moment I have deferred building a house once more…even after time spent making moves in that direction. I have my own golden goose which still needs more investment to get her to peak egg production (profitability). So I am investing in shedding/storage now but also for some time I have built inventory because the type of business I do involves playing for mining money against a few other competitors over whom I had natural advantages in some respects… and not in others. I know my product way better and was bound to source it cheaper in the end plus supply superior advice, they had existing facilities, inventory and contacts. So I needed a war chest of stock and I have been working on that for some years now with reasonable success. That situation will obviously culminate in a sudden influx of cash down the track at which time building a house (on a separate block will be the go). No need for risky debt levels.

    I had found a block I was in love with. It was actually a stranded residential block and I needed to put my own road in. The pay off was that you’d get to be the king of a small but healthy country town in the sense your set high above all the other residences and business district, not too far from the surf beaches really (hour and half max), farm like surrounds, to die for views of distant mountain ranges, peace and quiet…and yet the kids could ride their bikes down town. Chance of close neighbours moving in…nil.Seems to me that developing that would also be a financial boon despite the utility it provides the owner in the current tense.
    “Off the plan” then!

    Anyhow if I don’t do this then I may stick with the idea of buying a few hundred acres, growing a few things and restoring much of it for the wildlife. Also have some places in mind there. Or maybe I’ll eventually do the whole lot…just gotta keep treating my goose right!

    Sorry Greg..it’s Sunday here. 🙂

  • 22 Biker // Mar 18, 2015 at 12:02 pm

    Sounds like a good plan A and a sound back-up Plan B, Lachlan.

    Agree with your comment “No need for risky debt levels…” too.

  • 23 Greg Atkinson // Aug 31, 2015 at 3:10 pm

    Seems like Deutsche Bank have woken up and realised their earlier forecast for the ASX 200 for this year was off the mark.

    Curiously they now forecast the XJO to finish at 5600 which is the call I made 7 months ago.

    “The investment and research house today said it was cutting its year-end target for the ASX200 index, the main local stockmarket gauge, to 5600 points, revised from its previous forecast of 6,200 points.”

    See: Duetsche slashes ASX200 forecast http://www.theaustralian.com.au/business/latest/duetsche-slashes-asx200-forecast/story-e6frg90f-1227506300330

Leave a Comment

*


 


This site is not intended to act as any form of financial or investment advice.  © 2008–2015 Shareswatch Australia — DisclaimerCutline by Chris Pearson

The information contained in this website is for general information purposes only. Whilst we endeavour to keep the information up-to-date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.