The S&P/ASX 200 Index (ASX: XJO) will hit an all-time record high this year, according to one prominent economist.
Like most share markets, the ASX had a nice recovery from the COVID-19 lows in March last year.
But the past month has seen a bond-driven hiccup, with the ASX 200 dropping almost 1.7% and the S&P ASX All Technology Index (ASX: XTX) getting whacked a painful 14%.
AMP Capital chief economist Shane Oliver told investors to ride out the bump, because this year is looking good.
"Shares remain at risk of further volatility from rising bond yields," he said.
"But looking through the inevitable short-term noise, the combination of improving global growth helped by more stimulus, vaccines and still low interest rates augurs well for growth assets generally in 2021."
Oliver is so optimistic that he predicted the ASX would end up where it had never gone before.
"Expect the ASX 200 to end 2021 at a record high of around 7200."
The current all-time high is 7199.79 seen in February last year, just before the market plunged.
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Rotation to recovery value sectors will continue
Oliver might think growth stocks will come back in vogue, but the market's change in taste for certain sectors will continue.
"We are likely to see a continuing shift in performance away from investments that benefitted from the pandemic and lockdowns — like technology and health care stocks and bonds — to investments that will benefit from recovery, like resources, industrials, tourism stocks and financials."
The shift to the more traditional sectors will mean dividends will rise.
On Monday, Plato Investment Management predicted the ASX 200 would return 4.8% gross yield this year, which wasn't far off the 4.5% that Oliver forecast.
"Australian shares are likely to be relative outperformers helped by better virus control enabling a stronger recovery in the near term, stronger stimulus, [and] sectors like resources, industrials and financials benefitting from the rebound in growth."
Internationally, the US markets were the darling of investors in 2020, but expect that to shift to other regions this year.
"Global shares are expected to return around 8% this year but expect a rotation away from growth-heavy US shares to more cyclical markets in Europe, Japan and emerging countries," said Oliver.
