Australia's benchmark share index is seen ending 2014 at a 6-1/2 year high, a Reuters poll has forecast, driven by record low interest rates and an improving local economy, though a slowdown in China has some analysts bearish. The S&P/ASX 200 index will reach 5,700 points by the year-end, a 7.3 percent gain on the September 26 close of 5,313.41, according to the median from a poll of 11 analysts taken in the past week.
"The economy is starting to lift and that's going to provide some value over the next 12 months, and the ongoing thematic of investors chasing high-yielding stocks - that's probably going to be a decent driver as well," said Savanth Sebastian, equities economist at Commonwealth Securities in Sydney. The median forecast for end-2014 was unchanged from the June poll, despite the benchmark index erasing all of its year-to-date gains in September.
Foreign investors have recently pulled out of the local equities market on the back of rising bond yields, as a slump in iron ore prices and a fall in the Australian dollar have also curbed appetite.
The Australian dollar has fallen almost 7 percent since the beginning of the month to $0.8699, while iron ore - Australia's top export earner - has slumped over 10 percent during September to hit $78.60 a tonne, its lowest since September 2009.
"When the Aussie dollar falls, foreign investors stay away, but over time the Aussie dollar will lead to stronger profit growth expectations," said Shane Oliver, chief economist at AMP Capital who anticipates the index ending the year around 5,800 points.
UBS said it remains overweight on stocks leveraged to a falling Australian dollar, while Macquarie Bank said it anticipates a bounce back in iron ore prices towards $95-$100 a tonne in the fourth quarter. Estimates ranged from a low of 5,200 to a peak of 5,850 for the end of 2014.
"China remains under pressure, ongoing fund movement from offshore funds moving out of Australia and back into US dollar exposed assets (will hurt the local share market)," said Andrew Quin, research strategy co-ordinator at Patersons Securities, which gave the lowest forecast at 5,200.
Ten analysts gave forecasts for mid-2015, with a median view for 5,900, remaining in line with the June poll. Predictions ranged from 5,100 to 6,100.
"China's going through a much faster growth slowdown than what markets currently expect - I tend to think it's going to be hard for the Australian share market to reach breakout velocity," said Matthew Sherwood, head of investment market research at Perpetual, who forecast 5,300 for year end and 5,100 for mid-2015.