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Outlook for the ASX in 2018

With Australia having lagged behind the global economy last year, AMP Capital Chief Economist Dr Shane Oliver looks at what global indicators may mean for the ASX in 2018.


 
The Australian Stock Exchange is likely to inch higher this year as a challenging time for retailers is offset by a predicted rise in commodity prices.

“Commodity prices are likely to push higher in response to strong global growth,” predicts AMP Capital Chief Economist Shane Oliver. 

AMP Capital predicts global growth is likely to move up to 3.7 per cent, ranging from around 2 per cent in advanced countries, to around 6.5 per cent in China, with the US receiving a boost from tax cuts.

“The sweet-spot combination of solid global growth and profits, and yet low inflation and benign central banks, is likely to continue in 2018,” says Oliver. “Overall, this should mean continuing strong global profit growth, albeit momentum is likely to peak.”

Australia lagged the global economy last year, and is likely to do so again in 2018 as inflation remains below target and fears ramp up of a bust in the housing market.

“Australian shares are likely to do okay but with returns constrained to around 8 per cent with moderate earnings growth,” says Oliver. 

The ASX 200 should rise 8.2 per cent to 6200 by end 2018, after ending the year on 6066, he predicts.
 
The Reserve Bank of Australia (RBA) is not likely to raise interest rates until the end of the year, according to AMP Capital forecasts, as housing prices continue to soften, retail spending remains weak, and wage growth remains subdued.

“As a result of uncertainties around consumer spending along with low wages growth and inflation, it is difficult to see a near-term rate hike from the RBA. We think a rate hike could occur in late 2018 at the earliest,” says Oliver.

Capital city residential property price gains are expected to slow to around zero overall as the air comes out of the Sydney and Melbourne property boom this year – causing a price drop of around 5 per cent – and Perth and Darwin bottom out. Meantime, Adelaide and Brisbane should see moderate gains whilst Hobart is expected to boom.

Commercial property and infrastructure are likely to continue benefitting from the ongoing search for yield by investors. 

Meantime, the $A is likely to fall to around $US0.70, but with little change against the Yen and the Euro, as the gap between the Fed Funds rate and the RBA’s cash rate goes negative.
 

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

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