The ASX 200 is at risk of transforming a strong year into a merely average one, with recent declines raising concerns. After sitting on a year-to-date gain of 10.9 per cent, the market has slipped 5.3 per cent since late October, driven by a sell-off in blue-chip stocks. Commonwealth Bank, CSL, Macquarie Group, Goodman Group, and Wesfarmers have notably contributed to this downturn, impacting Australian investors.
Macquarie’s strategist Matthew Brooks suggests the market has seen unusual trends recently, with loss-making companies outperforming quality stocks. He notes that while the ASX 200 could potentially dip further, the underlying economic conditions remain supportive. Strong consumer confidence and positive business conditions indicated by NAB’s survey suggest the current situation is a correction rather than the end of the boom.
Morgan Stanley’s strategist Chris Nicol expects growth to stabilise and earnings per share to improve, particularly in the mining sector. Both Brooks and Nicol agree the global picture remains supportive, with central bank rate cuts and reasonable growth outside the US. Nicol projects the ASX 200 could reach 9250 in 12 months, offering a 10 per cent total return.
Brooks recommends investors look towards lower-risk value stocks that typically perform well after boom periods. He highlighted companies like Aurizon, ANZ, BHP, Rio Tinto, Amcor, GPT, and Challenger. Nicol’s model portfolio favours resources stocks, adding to positions in Newmont and Rio Tinto, while also including REA Group, Sigma Healthcare, and Pilbara Minerals. REA Group operates online property classifieds websites. Sigma Healthcare, part of Chemist Warehouse, is a significant player in the healthcare distribution sector.
