Australian shares are forecast to advance 13 percent to the end of 2011, but the gains are mostly seen in the fourth quarter as investors wait for worries about the Greek debt crisis and China tightening to abate before buying in, a Reuters poll showed.
The market has fallen over 5 percent so far this year, underperforming most major markets, forcing strategists to slice forecasts, but they expect the market to gain steam in the second half because stocks are cheap.
"The risks over the next month or so are quite considerable. They are a lot higher than they have been for quite some time," said Damien Klassen, an analyst at Wilson HTM Asset Management.
The benchmark S&P/ASX 200 index, which fell 2.6 percent last year, is forecast to rise to 5,100 by year-end, a 13 percent gain on Thursday's close of 4,500 but 5 percent lower than forecast three months ago.
Estimates in the poll of 15 analysts, taken over the past week, ranged between 4,918 and 5,500. The factors holding back the bulls include Greek debt, the withdrawal of the US Federal Reserve's stimulus, slower US economic growth, and inflationary fears in China. The external concerns, combined with freak weather which hit growth in Australia in the first quarter, have weighed on share prices in the first half, pushing some shares down to their weakest levels since the global financial crisis hit. The market has also been held back by the strength of the Australian dollar, which has deterred foreign investors from putting new money into the market and triggered profit-taking by foreign investors cashing in on their Aussie dollar gains.