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Australian Stock Market Outlook & Forecast for 2014

February 5th, 2014 · Greg Atkinson · 31 Comments

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

31 responses so far ↓

  • 1 opinder // Feb 5, 2014 at 10:11 am

    Hi Greg…

    Great to see your article about 2014…I was reading another article yesterday by Harry Dent..

    He predicts a big crash in Australian and chinese real estate market 30 to 50% drop in prices.

    he also predicts big share market crash.. But I guess if we hold a long term view of markets thing swill be different.

    Rest Lets see what happens..

  • 2 Greg Atkinson // Feb 5, 2014 at 11:16 am

    Opinder this is a tough year to make a call as I feel that perhaps there is going to be a large swing up or down at some point so where the market finishes the year will depend on when the swing happens.

    I have never been a property crash sort of guy in terms of Australian real estate but in China I expect it will happen. However what is less certain is the impact this will have on Australian stocks and property.

    The stock market has already been hit hard and is still well below the last market high. House prices appear to have some scope to fall back. My guess is (and it is a guess) that nationwide house prices will fall back this year around 5-10%.

  • 3 Biker // Feb 5, 2014 at 11:36 am

    From the archives (12 Sept 2011):

    Ho hum 😀

  • 4 Greg Atkinson // Feb 5, 2014 at 7:18 pm

    Yes a few people have predicted property crashes and have come unstuck often because they seem to narrow things down to 1-2 years. Not quite sure why, but when it comes to house prices there seems to be just two camps: the boomers and the doomers.

  • 5 Biker // Feb 6, 2014 at 7:01 am

    Boom or bust? To a certain extent, that’s true. But you don’t _sell books_ peddling the premise that the property market will keep pace with inflation.

    Dent’s history of good and bad calls is mixed, but he missed a brilliant opportunity, at the time of his last ‘Australian property crash’ call, didn’t he? At that time, gold was at its zenith. Had he focussed on precious metals… and called that crash (instead of Australian property) we might give him some credence. Who knows? He might have saved a few local PM investors a packet!~

  • 6 Lachlan Scanlan // Feb 7, 2014 at 7:16 am

    I’m not really a property boomer or doomer but just see the potential in our small country for prices to remain in a relative stasis during the financial and economic events I tend to think will play out in the next 5 years or so. My reading of property so far in the last five years is that it has gone up a little and down a little…pretty much gone nowhere….but not crashed or boomed.
    In some grazing/cropping areas up here some land had almost tipped $3000/acre and has obviously retreated back from that point but of course it’s the residential areas that people are really debating about.
    In regard to the recent property price rises it proved to me that rate reductions would increase demand and that buyers are still keen to borrow and enter the market…correct me if that analyses is wrong.
    Anyhow Greg I have not organised a prediction for this years crystal ball gazing competition but I’ll get on to it soon.

  • 7 Dulong Ttil // Feb 7, 2014 at 1:58 pm

    If we want to sustain our economy stability, a competitive $A is needed. To cite an example, Japan has been applying an assertive Monetary Easing Policy, which drives the YEN downwards successfully. The immediate result shows that their Export and Tourism industries have picked up swiftly. Japan is now enjoying healthy export growth and has much more tourists visiting Japan.

    With the sound and robust stimulation by Japan’s Monetary Easing Policy (which in fact mainly injecting more printed notes into the market by their Central Bank), the Nikkei has soared from 10,398 to 16,291 just in 2013. Nikkei marks its best performance in forty years, and also the top performer among Asian markets in 2013. Analysts name this “Nikkei Ends Year on a High in Quiet Asia”. This is the power of an aggressive Monetary Easing Policy.

    Australia should consider this as a viable option to improve our economy outlook , so that our export can be improved instantaneously.

    A lower $A can help to improve our Export competitiveness, save the Australian farmers, exporters and manufacturers and reduce our trade deficit. It can also help to improve our Tourism industry, which was seriously damaged due to the high $A.

    Another thought is to engage a linked currency with USD, (e.g. A$1:US$0.80), which can give overseas investors good confidence in our economy stability.

  • 8 Lachlan Scanlan // Feb 7, 2014 at 5:43 pm

    they’ll devalue one day regardless. See basic mathematics school text and add modern monetary mechanics or debt money etc. maybe add some human nature and politics

  • 9 Greg Atkinson // Feb 8, 2014 at 9:36 am

    Weakening a currency is a two edge sword as of course it makes imports more expensive. In Japan for example the cost of fuel imports has soared as have the volumes since all the nuclear power plants are off-line.

    In Australia meanwhile the strength of the AUD is pushed as the primary reason why manufacturing exports have struggled which is simply not true. High input costs (i.e. wages), stagnant productivity & a lack of innovation are other factors but usually no body wants to talk about them.

    Looking forward to?your forecast Lachlan.

  • 10 Stillgotshoeson // Feb 8, 2014 at 7:49 pm

    The “We could have 5 more years of this” statement I made a couple of years back is strong in my mind.

    A pull back on the ASX to the low to mid 4000 range is about the worst I expect this year.

    Gold around $1500USD and with a falling AUD closer to $1800AUD at some point over the year.
    Silver around the $30USD and $36AUD or so region.

    Unemployment to continue to trend higher.

    Melbourne property to gain 5% or so.

    I still doubt the USA is in a real position of recovery and some sort of stimulus will be in play later this year

  • 11 Lachlan Scanlan // Feb 8, 2014 at 10:06 pm

    Well since this is Shareswatch Australia I’ll start with the asx200 which I believe will hit roughly 6000 at some point in the year.
    It seems to me the AUDUSD has likely got a date this year with a lower support like the pivot area around 80.
    As the AUD bottoms out sometime (assuming it does what i said) then many commods will do well. I would imagine a possible scenario later this year where the AUDUSD bottoms, the war weary Aussie gold shares indexes bottom out and oil breaks out of it’s long sideways range too which sparks off a healthy correction in the XJO/Dow before more stimulus floats all boats together.
    Although the AUD pms are likely to remain strong from here the USD pms may diddle around a little yet.
    All up a bullish call.
    Shoes if target rates are lower again then maybe residential property will go up another notch as you say. Should at least hold.

  • 12 Matthew // Feb 11, 2014 at 11:28 pm

    Last year I wrote a story, this year I will drop in the highlights! Still happy to be measured against my predictions:

    1) ASX to finish within the range of 5,300 and 5,500. Another unspectacular year, but still on the up.
    2) Property prices to rise between 5% and 7% nationally. Strength in the middle of the market with patchy work at the book ends
    3) Interest rates to rise 0.25% and just to have a bet, that rise to occur on Melbourne Cup Day
    4) Unemployment to trend insignificantly higher. On the up, but not by enough to matter (except to those who are on the outer
    5)A$ to finish around $0.80

    I am confident that

    a) Those praying for a crash in shares or property will again be disappointed in 2014
    b)as a consequence, those hoping that the best case for cash is under the lemon tree, or in pm’s will be equally sad.

    As the cop as the car crash says, there is nothing to see here, perhaps in 2015 the game will change in a big way either way.

  • 13 Greg Atkinson // Feb 12, 2014 at 3:20 pm

    Matthew your call regarding the ASX last year was pretty close to the mark and so far this year you look to be right on the money.

    I agree with you regarding unemployment and actually I expected it creep up higher over the last two years. One trend I did not fully take into account was the shift to part-time jobs which does mask to some extent the true weakness of the labour market.

  • 14 Matthew // Feb 14, 2014 at 11:51 pm

    Greg the issue is that mot people with an opinion on these matters live in the extremes. As you know the real action most years lies in a tight band of the bell curve.

    There is nothing telling me that the curent year will be anything other than unspectacular.

    Dont get me wrong if I see a boom or crash coming I will toss my hat in the ring. I just didnt see it last year and I dont see it again this year.

    I worked for a while in an environment of 5 year rolling forecasts and the long term was always a thumb suck, but you can ususally pick up the short term if you are objective, and there in lies the problem!

  • 15 Greg Atkinson // Feb 15, 2014 at 8:24 am

    Yes Matthew we can tend to exaggerate how far the market moves. I generally work with a 1 year outlook (or guesstimate), a 2-5 year forecast and a longer term 10 year forecast. Of course these are being updated/revised fairly regularly.

    So last year I basically reckoned the market would rise by the long term average and this year I reckon it will finish fairly flat. If I gazed out longer to say 2016/17 I reckon the ASX All Ords & S&P/ASX 200 should be back to where they were before the GFC…i.e around 6500. If they get there earlier then that would be a bonus.

  • 16 Lachlan Scanlan // Feb 22, 2014 at 8:30 am

    Hi Greg…I’ve not seen much of civilisation for five days but now I am looking at the xjo and it seems to be attempting a breakout on strong action…which could suck in bulls and breakdown next week. If the breakout is not faded however a measured move may be 5900 approx off the most recent consolidation action. Then my crystal ball will be off to a good start at least.
    I never put in an end of year guess either. Hmmm..

  • 17 Greg Atkinson // Feb 27, 2014 at 7:03 pm

    Lachlan if you put forward an end of year guess then the chances are one of us will be close…maybe 😉

  • 18 Stillgotshoeson // Feb 27, 2014 at 7:48 pm

    I failed to put in an end of year as well… whilst I expect a dip this year, it will probably recover most of that dip by years end.

    I still feel it will go below 3000 again but that is probably still 3 or so years away yet.

    I tend to agree with your end of year range of 4800-5200 Greg… Hope that is not a kiss of death call for it 🙂

  • 19 Lachlan Scanlan // Feb 27, 2014 at 11:28 pm

    Well I’ve driven for ten hours, it’s midnight and I’ve just walked in the door. Obvious thing to do is comment on here, of course…

    Anyhow Greg your right and just to help out I’ll be a little more bullish than the rest and say we finish off a little above 5500. There you go Greg all bases covered….and now it’ll crash…just kidding

  • 20 Greg Atkinson // Jul 12, 2014 at 9:56 am

    Well we are now into the second half of the year and the ASX All Ords/ASX 200 are up near 5500. But am I tempted to revise my forecast? Not at all!

    I am sticking with the 4800-5200 range & still reckon the market at current levels, is overbought with the major banks in particular looking pricey to me.

  • 21 Shaun // Aug 6, 2014 at 7:33 pm

    Hi, I just came across this website. Very interesting and some very informed opinions. I am of the view that the ASX will finish around the 6000 mark.

    Unlike Greg, I believe it is well below its long term trend, which should be more like 6400 at the moment. So if it catches up to that trend, it will exceed the 2007 high next calendar year. I don’t think the ASX has ever taken more than 10 years to exceed its previous high. Food for thought!

    Has anyone read the paper by Robert Vagg? His paper is a lot more bullish.

  • 22 Greg Atkinson // Aug 8, 2014 at 10:46 am

    Hi Shaun & thanks for visiting the site. It looks like the All Ords/ASX 200 will close this week around 5500 so we both have an equal chance of being right at the end of the year 🙂 I’m still bearish as I think the Oz economy is slowing & the Chinese economy is pushing ahead in an unsustainable way. I also fear the US Fed Reserve via QE has created a number of asset bubbles which will deflate once investors feel the part is over.
    But your point about the ASX long term trend is an interesting one and I am watching that closely myself. But was the long term trend distorted by the pre-GFC boom and if so, maybe we need lower the trend line a touch?

  • 23 Shaun // Aug 9, 2014 at 9:57 am

    Thanks Greg, my projection starts from 1900. In the last 50 years, there were a couple of spikes (1970, 1987 and 2007) as well as a couple of severe troughs (1974, 1988, 2009). They all diverged from the trend, but they always bounce back the trend line. As well, in this 50 years, the longest period for the previous peak to be equaled and exceeded was 10 years, but usually less.

    That trend survived two world wars, and the great depression.

    You make some very valid points, and you could well be right of course. Ta.

  • 24 Shaun // Aug 9, 2014 at 10:05 am

    The 1988 “trough” should be excluded as it simply brought the XAO back to the trend line, even thought it was a mighty fall!

  • 25 Greg Atkinson // Aug 10, 2014 at 10:39 am

    Shaun I am a little surprised actually that the ASX All Ords/ASX 200 has not moved back up closer to the long term trend but I expected this to happen after the market took a hit from a slowdown in China. So far the Chinese economy is still growing at +7% per year so the market shake-out/shift I was expecting has not happened. (yet?)

    Sobering to think that after 6-7 years the ASX All Ords/ASX are still below the last bull market high.

    By the way, you may find my post from January 2009 interesting: Is the golden era for the Australian stock market over?

  • 26 Shaun // Aug 11, 2014 at 3:54 pm

    Cheers Greg, from that link, your prognosis of the XAO under performing DJI has been borne out. We are now 6 years into that 5-10 year range. Good foresight!

    Question now is going forward. According to my long term trends, the XAO has more to gain in the next 5 years.

    Anyway, I only invest in the domestic market because I want the franked dividends. I keep an eye on other markets to give me a broader view.

  • 27 Greg Atkinson // Aug 13, 2014 at 11:04 am

    Shuan that was one of my better calls, I just wish they always turned out that way!

    Going forward I suspect the ASX may outperform the DJIA which after-all has had a stellar run over the last few years. (thanks largely to QE)

    I am also a big fan of franked dividends which help give me the patience needed to be a long term investor especially during times when the market is down.

  • 28 Greg Atkinson // Jan 16, 2015 at 5:38 pm

    Well unless I am mistaken the honours for 2014 in regards to picking where the market would finish go to Matthew with this prediction on Feb 11th.

    “ASX to finish within the range of 5,300 and 5,500. Another unspectacular year, but still on the up.”

    Well the ASX All Ords/ASX 200 finished right in the middle of that range so that’s very well done!

    If we ever cross paths Matthew then I owe you a very large beer!

  • 29 lachlan // Jan 17, 2015 at 8:47 am

    Yes very well done Matthew.
    Matthew and I had a shared outlook on the AUD which did test support around 80. I was too optimistic on the effect that would have on stocks by 2-300 points at the close of the year plus we missed a test of 6000 by 350 points during the year. No doubt that was a way too ambitious call from the outset, there was just too much ground to cover. AUD Au did well and outstripped USD Au off the back of the weak currency as was my thought. The oil price broke down rather than up.
    Having trouble formulating ideas for this year so far. If I was a trader I would be gradually accumulating some long positions on over sold markets though for sure.

  • 30 Matthew // Jan 19, 2015 at 7:06 pm

    Thanks Greg and Lachlan, however it is difficult to take pride in reading insignificant events in a narrow band!

    I will take that beer though Greg and buy you a few in return, would be a very interesting nights discussion, we could solve all of the worlds problems!!

  • 31 Greg Atkinson // Jan 22, 2015 at 5:43 pm

    Take a bow Matthew, it was a good call. As for solving the worlds problems, I think they are trying to do that in Davos now. Nothing quite like flying halfway across the planet in a private jet to talk about carbon emissions and inequality 😉

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