Investment bank Credit Suisse is predicting the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) will hit 6,000 points, but not before the end of 2017.
The bank's economists have outlined five trends that could see affect our market over the next 12 months.
- Global reflation trade. Global growth is expected to grow at the fastest rate in six years, with investors expected to sell out of bonds and buy commodities and stocks set to benefit from inflation.
- Australian profits to recover. Earnings per share are forecast to rise for the first time in three years Credit Suisse says. Previously unloved stocks like BlueScope Steel Limited (ASX: BSL), Metcash Limited (ASX: MTS) and Myer Holdings Ltd (ASX: MYR) could benefit the most they say. The only problem with that is that share prices tend to move in line with earnings, and the three companies above are all in different sectors with very different businesses.
- Lower superannuation contributions. From July 1, 2017, reduced limits on contributions to super will kick in, which could see Australians rush to kick in as much as they can before the new limits come into play.
- Possible reform in China. A big call – no wonder they added "Possible" to their prediction/forecast/guess. A more liberalised China could see consumption becoming the dominant driver of the economy rather than investment and infrastructure.
- Global yield frenzy draws to a close. Australian equities will suffer as higher bond yields, more competitive term deposits provide higher income returns. Offshore investors could flee the likes of the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) en-mass.
There are a couple of small issues though.
Credit Suisse also predicted the ASX would hit 6,000 in 2015 and 2016. Could 2017 be third-time lucky? That's the problem with predictions – they have a tendency to be wrong more often than not. We could see the ASX hit 6,000 early in 2017 and then crash back to 5,000, or zoom even higher to 7,000 by the end of the year.
Wherever the market is at the end won't have much effect on retail investor's portfolios – unless the only security you own is an ASX 200 index tracker. Individual stocks could see returns of 500% or more over the next year, or lose nearly all their value. How an investor's portfolio performs will depend more on the individual stocks and their relevant weightings in the portfolio.
What Credit Suisse's prediction is clearly aimed at is those active fund managers that hug the index. A cynical view might be that it's almost a sales pitch, marketing those companies that the analysts think will do well in 2017, and perhaps get the funds to switch stocks – by which the investment bank can earn brokerage.
Foolish investors are better off ignoring predictions of where the market may or may not be in future and focus on buying quality companies at cheap prices and holding for the long term.
