Analysts tip hot year ahead for investors

Many top analysts are suggesting total returns of 10 per cent or more in the ASX in the year ahead.

Top of the list for what might upset the apple cart is any major problems with the global COVID vaccine rollout. Picture: NCA NewsWire / Gaye Gerard

Undeterred by upsets in 2020, sharemarket forecasters are back with “market outlooks” suggesting 2021 will be exceptionally good for investors with new records being set as the world enjoys the best economic growth for 50 years.

Many top analysts are suggesting we are on course to see total returns of 10 per cent or more in the ASX in the year ahead.

Better still, forecasts suggest that Australian shares will be among the very best investment choices worldwide in 2021 with the S&P/ASX 200 due to hit new record highs.

Veteran analyst David Cassidy, head of investment strategy at Wilsons, joined the party this week adding his considerable reputation to a growing consensus investors could be in for a bumper year with risks, as they like to put, firmly on the “upside”.

As 2020 comes to a close after a very strong performance in November and December it looks like we will finish this year with a flat to mildly improved performance over the last 12 months with the ASX 200 around 6600.

However, if most forecasters get it right next year we should be well north of 7000 on the ASX 200 — CommSec forecasts a figure of 7225 by December 2021.

Shane Oliver at AMP Capital forecasts 12 per cent total returns for Australian shares next year — (total returns include dividends which are expected to be more than 4 per cent again in 2021).

If local shares make this number they will equal virtually any other asset class available including Asian shares and emerging markets equities.

Behind the bullish — some might say heroic — assumptions shared by leading analysts is the core belief that company earnings will jump in 2021 powered by rebounding economic growth.

At Wilsons, Cassidy opts for “low double-digit returns” as a central case.

Cassidy suggests: “We think the pace of global GDP growth in 2021 will be close to the fastest in 50 years. As we move into 2021, for shares to continue moving higher, earnings recovery now needs to be delivered. Promising signs are already emerging in respect of positive consensus earnings per share (EPS) revisions.”

As leading global brokers pencil in earnings growth of at least 10 per cent next year, Macquarie suggests that all things considered even 20 per earnings growth is not unrealistic.

Overall, investors are tipped to benefit from a very useful coincidence of low rates, a vaccine-led economic recovery and the hunt for returns on the wider sharemarket.

Economic growth in 2021 — expressed in Gross Domestic Product — is set to power ahead between 5 and 6 per cent. Australia should also have a very strong year though the rebound will be modified by the fact we did not have as sharp a drop as some other economies. Australian GDP is projected to grow between 4 and 5 per cent.

As we have come to expect, brokers are a little more cautious when it comes to forecasting the outlook for specific stocks or even particular sectors.

However, there also seems to a broad consensus that overlooked stocks — so-called “beaten up cyclicals” should be due their day in the sun over the next 12 months led by the big four banks — ANZ, CBA, NAB and Westpac.

Commonwealth Bank is generally seen as the high quality pick among the big four with NAB often seen as the stock which has the most potential for share price recovery after a severe mauling earlier this year.

Stock pickers are also pointing to beaten up industrial and property cyclicals where just about everything went wrong in 2020 such as Lendlease or Woodside.

On a more positive note many brokers have also issued bullish reports on the wider thematic of electric cars and the supply chain feeding into this sector which already had a very strong run over the past 12 months.

Among the “battery metal” stocks regularly mentioned in dispatches are long time punters favourite Orocobre, Pilbara Minerals and Galaxy Resources.

What might possibly go wrong in 2021? In some forecasts the caveats are almost as fulsome as the forecasts themselves, certainly everyone who is paid to make market projections is taking great care to cover for unexpected twists and “black swan” moments in the year ahead.

Top of the list for what might upset the apple cart is any major problems with the global COVID vaccine rollout.

As Cassidy at Wilson’s suggests: “Problems with the vaccine program in terms of unforeseen side effects, lower than expected effectiveness, or disappointing take-up rates are not our central case but are a key risk to our strong recovery view.”