Investors are probably exiting this year with some decent gains, but it's 2018 that you should be excited about as at least one broker is tipping solid double-digit gains for the ASX over the next 12 months.
Macquarie Group Limited (ASX: MQG) is tipping the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) will rally to 6,500 points by the end of next year, which implies a capital gain of a little over 9%. Add in dividends and franking credits and you could be sitting on a total return of around 15%!
In contrast, the ASX 200 is up around 5% since the start of this calendar year.
The bullish outlook is driven by what the broker considers a "sweet spot" for the ASX with reasonable underlying economic growth, low interest rates and relatively inexpensive valuations.
Further, economic data on business conditions and expectations is robust and that stands in sharp contrast to falling earnings expectations for ASX-listed companies, noted Macquarie.
These tailwinds will also likely mean that our market will outperform its US counterparts, which will be weighed down by a tightening interest rate cycle and valuation concerns, and Macquarie is confident in its call, as it believes there is much more clarity on global growth as compared to the start of 2017.
Citigroup is also tipping double-digit total returns for the ASX 200 in 2018 as its strategist is forecasting the index to reach 6,400, although Deutsche is expecting a fairly flat outcome for our top 200 stocks, according to the Australian Financial Review.
Stocks that Macquarie favours in 2018 are those with domestic cyclical businesses and strong offshore growth potential.
From that perspective, stocks that the broker is tipping as winners for the new year include cement supplier Adelaide Brighton Ltd. (ASX: ABC), engineering group Downer EDI Limited (ASX: DOW), chemicals manufacturer Incitec Pivot Ltd (ASX: IPL) and building materials companies Boral Limited (ASX: BLD) and James Hardie Industries plc (ASX: JHX).
I think investors can also add Macquarie to the list, along with logistics group Qube Holdings Ltd (ASX: QUB).
What you might have noticed is that all these stocks are trading on relatively high multiples. There are no "bargains" to be had here. But that is not surprising as investors will need to pay up for stocks with greater earnings certainty.
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