Australia's leading share index is forecast to finish the year up 11 percent, but much of that rise has already been achieved with further gains limited now by US and Chinese economic concerns, a Reuters poll of market analysts showed. The S&P/ASX 200 index, which fell 15 percent last year in its biggest annual drop in two decades, is expected to tick higher in the first half of 2013, when analysts expect a stronger rise in commodity prices and interest rate cuts by the Reserve Bank of Australia.
The index, forecast to reach 4,500 points by the end of the year and 4,670 points by mid-2013, has already risen 8 percent to Wednesday's close of 4,361.60 points. Forecasts from the poll of 14 analysts, conducted over the past week, ranged widely - the index is pegged at between 4,250 to 4,760 at the end of the year and 4,470 and 5,100 in mid-2013.
"Basically we're saying the market ends up where we are now ... because global growth doesn't look fantastic, China seems reluctant to do a lot of stimulus and it doesn't help commodity prices or our resource stock," said Tim Baker, equities strategist at Deutsche Bank. Baker, one of the more bearish analysts polled, had a forecast of 4,350 points for end-2012 and 4,650 for mid-2013.
But Michael Knox, director of strategy and chief economist at RBS Morgans, one of the more bullish analysts polled, said Australia had been trading at a discount because of the European sovereign debt crisis. "With the European banking crisis ending, that discount should disappear," said Knox, who has forecast a rise to 4,700 by the end of the year and to 5,100 in mid-2013.
Share markets got off to a flying start in 2012 but have spluttered since mid-March when China lowered its growth forecast for the year and iron ore prices began to slide. For Australia, the world's biggest exporter of iron ore, the risks of a Chinese slowdown are keenly felt.
The Bureau of Resources and Energy Economics (BREE) earlier this month forecast revenue from iron ore, Australia's largest single export, of A$53.2 billion ($55.9 billion) in this fiscal year, down from a June forecast of A$67 billion and around A$63 billion last year.
BHP Billiton last month shelved its Olympic Dam copper mine expansion, its Outer Harbour iron ore expansion and its Peak Downs coking coal expansion, together worth over US $40 billion. And debt-laden Fortescue Metals Group, which had planned to triple iron ore output to 155 million tonnes a year by mid-2013, slammed on the brakes last week, delaying nearly half that expansion to save US $1.6 billion.
The market has also kept a close eye on Europe's debt problems and a slow start to a US recovery. Positive sentiment from stimulus measures by several central banks last week is already starting to fade. Paul Brunker, managing director of research at J.P. Morgan, said he expects the Australian economy to show the first signs of weakness by December.
"The end of the year we think will be slightly lower than today, first of all we think the excitement over monetary stimulus offshore will wane," Brunker said. "The second thing we think (is) Europe will enter into more dangerous territory as the economy and countries like Spain wavers." Brunker was the most bearish analyst polled, forecasting the S&P S&P/ASX 200 index will be 4,250 points at end of year and 4,500 in mid-2013.
Other analysts expect some improvements in Chinese economic data going into the new year. "In the first half of next year I think there's grounds to hope that there's a bit more of a policy response in China, that the policy response in the US and Europe has worked a little bit and commodity prices start to edge up," Baker said.
Damien Boey, equity strategist at Credit Suisse expects to see "a little bit of a China recovery, a little bit of a resources recovery." Investors are also pinning hopes on a further easing of the official cash rate to shore up growth and domestic consumption, which could aid battered domestic retailers. Australia's central bank last cut rates in June, for a second consecutive month. At 3.5 percent, rates are now the lowest since 2009, but still far above those in the United States, Japan or Europe.
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